BLBG:Euro Drops Before ECB as Trichet May Discuss Greek Debt Collateral Rules
The euro touched a one-week low against the dollar as concern that Greece may become the currency region’s first default outweighed prospects for higher interest rates from the European Central Bank.
The 17-member currency swung between gains and losses as investors considered whether ECB President Jean-Claude Trichet will comment on the central bank’s acceptance of Greek debt as loan collateral in the event of a default. All 55 economists surveyed by Bloomberg expect the ECB to raise its key rate 25 basis points to 1.5 percent at 1:45 p.m. in Frankfurt. Trichet, whose term ends October 31, briefs the press 45 minutes later.
“I thought this would be a day where the euro would get some support, as ECB policy is obviously an asset,” said Lutz Karpowitz, a currency strategist at Commerzbank AG in Frankfurt. “But we’ve also got this problem with a collateral rule. Nobody knows if Trichet, in his press conference, will really make clear what the thoughts of the ECB are. Everybody is already speculating. That brings the focus a bit away from the positive part of the ECB decision.”
The euro slipped 0.2 percent to $1.4293 at 10:54 a.m. in London. It weakened to $1.4276, the least since June 28. It traded at 115.92 yen, from 115.86 yesterday.
The ECB waived some of its collateral rules to provide a lifeline to Greek banks a year ago. While banks can currently obtain as much money as they need from the ECB for up to three months against eligible assets including government bonds, policy makers may no longer accept Greek debt as collateral if the country defaults.
Greek creditors meeting in Paris yesterday to examine proposals to roll over maturing Greek bonds may be willing to risk a planned and managed default, said Charles Dallara, the managing director of the International Institute of Finance.
The common currency depreciated 0.5 percent after Trichet’s June 9 news conference, when he signalled the bank may increase rates today. He damped investor expectations for further moves by reiterating that inflation will fall below the ECB’s 2 percent limit next year. Consumer prices rose 2.7 percent from a year earlier in June.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
