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Apr-24-2008

Euro Falls Versus Dollar as German Business Confidence Slumps

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Higher rates are one factor behind the strong euro. (More...)
The euro's initial pull-back on Tuesday came after bad news from Germany's banking sector, when the German banking association took over a Duesseldorf lender struggling to survive the current market environment. (More...)
European policy makers have been wary inflation will quicken after the cost of crude surged 82 percent in the year. (More...)
The U.S. housing slump has resulted in losses and writedowns at the world's biggest financial institutions of about $290 billion so far. (More...)
The Fed has lowered the main lending target rate 3 percentage points since September to 2.25 percent. (More...)
A report from BusinessEurope, which says it represents more than 20 million small, medium and large companies, said damage to export markets had been limited so far but "expecting emerging countries to compensate for weaker U.S. growth and consumption is hardly feasible." (More...)
Increased risk aversion is being reflected in money market rates, which have risen again on a spate of losses at major U.S. banks. (More...)
Dollar gains may be limited on speculation Commerce Department reports will show sales of new homes slid to a 13-year low in March and growth in durable goods orders stalled. (More...)
While Europe's economy has proved relatively resilient so far, there are signs the credit squeeze will slow growth. (More...)
The average government debt ratio in the euro area is expected to decline less rapidly in 2008, by around 1.5 percentage points, to 65.1 percent of GDP, it said. (More...)
The Financial Times Deutschland reported that the Federal Association of German Banks took over Duesseldorfer Hypothekenbank AG, a German government and mortgage lender, indicating the credit crisis is spreading to Europe. (More...)
In London on Thursday, the euro changed hands at 1.5749 dollars against 1.5882 late on Wednesday, at 163.51 yen (164.42), 0.7967 pounds (0.8022) and 1.6132 Swiss francs (1.6139). (More...)
Among the Central and Eastern European states, only Slovenia has met the criteria and switched to the euro in 2007. (More...)
"The U.S. data is still very weak, and the dollar should continue falling," said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group. (More...)

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Higher rates are one factor behind the strong euro. It said it understood that the ECB was keen to limit inflation but "in current circumstances the ECB should not lose sight of important downside risks to growth and exchange-rate developments." It warned of the dangers in different borrowing costs between the euro zone and other regions such as the U.S. and Britain where central banks have moved to cut rates to urge wary banks to lend more money in the wake of the subprime credit crisis. BusinessEurope predicts that the euro economy will grow by 1.7 percent this year more optimistic than the International Monetary Funds forecast of 1.4 percent. It expects European consumers to start spending again later this year as inflation cools down from record levels. The European Commission will likely next week lower its own growth figure, acknowledging that Europes recent boom will start to brake on high energy costs that fuel record-level inflation, tight credit conditions triggered by a banking crisis and a U.S. slowdown. [1] FRANKFURT (Thomson Financial) - European Central Bank Governing Council member Yves Mersch said the ECB in June may revise upward its inflation projections and might slightly cut the growth outlook for the euro area. The ECB puts out a quarterly forecast on euro zone inflation and growth and last March, it had raised its forecasts for euro zone inflation to 2.9 percent from 2.5 percent in 2008 and 2.1 percent from 1.8 percent in 2009. 'We will probably have to slightly adjust downward our growth forecasts,' he said, adding however that he does not think the revisions will be to levels that were forecast by the International Monetary Fund. Last March, the ECB cut its forecast for 2008 GDP growth to 1.7 percent from 2.0 percent and its projection for 2009 growth to 1.8 percent from 2.1 percent. Mersch, also head of Luxembourg central bank, said he is surprised many analysts still hold the view that the ECB would cut rates.[2] LONDON, Apr. 22, 2008 (Thomson Financial delivered by Newstex) -- The euro remained well bid as hawkish comments from European Central Bank officials overnight raised speculation the ECB might consider increasing interest rates rather than keeping them on hold. In an interview with the Financial Times, ECB Governing Council member Yves Mersch said the central bank in June may revise upward its inflation projections, and said he is surprised analysts still hold the view that it could cut rates. Elsewhere, fellow Governing Council member Christian Noyer told RTL radio the ECB will adjust its interest rates if necessary for inflation to be brought back down to below 2 percent next year. Analysts at BNP Paribas (OOTC:BPRBF) said they are seeing 'increasing signs that the ECB is flirting with the idea of hiking interest rates'.[3] Tuesday's remarks by Yves Mersch in the Financial Times Deutschland and comments made by Christian Noyer to France's RTL radio showed the governing council of the ECB is committed get euro zone inflation back around 2 percent, below the current 3.6 percent it is at now. It effectively threw water on any hopes of a rate cut by the bank, which has kept its benchmark rate unchanged at 4 percent since June even as the U.S. Federal Reserve, Bank of England and Bank of Canada have consistently lowered their own rates. The Bank of Canada on Tuesday slashed its interest rate by half a percentage point to 3 percent. It also hinted another cut may be coming as it feels the effects of a slumping economy at its largest trading partner.[4]

"Risks to price stability have increased'' and inflation will probably "remain at high levels in coming months,'' Nicholas Garganas, who heads the Greek central bank, said at a press conference in Athens today. "Markets have expected interest-rate cuts for months, but under these conditions, for reasons that have been well explained by Mr. Trichet, interest rates couldn't fall.'' In the U.S., the Federal Reserve has lowered its benchmark rate by 3 percentage points since mid-September, taking it to 2.25 percent, after record defaults on subprime mortgages pushed the economy to the brink of a recession and drove up credit costs worldwide. The Bank of England on April 10 lowered its key rate for the third time, to 5 percent.[5]

Australian Dollar Australia's dollar rose as much as 1% to 95.41 U.S. cents, the highest since 1984, and climbed 0.9% to 98.20 yen as consumer inflation in the first quarter breached 4% for the first time in seven years. The Canadian currency dropped against its U.S. counterpart as retail sales unexpectedly fell in February, fueling speculation the central bank may cut interest rates further. The Bank of Canada lowered its key rate by a half-percentage point to 3% yesterday.[6]

NEW YORK, April 22 (Reuters) - The euro rose against the dollar on Tuesday and traded above $1.60 for the first time since its 1999 inception amid growing expectations that the European Central Bank's next move may be an interest rate hike. That followed comments from Governing Council member Yves Mersch, who said the ECB has to ask itself each month whether a rate rise is needed to control inflation.[7] The euro rose yesterday above $US1.60 for the first time as ECB governing council member Christian Noyer said policy makers will ''do what it takes'' to restrain consumer prices. Noyer later told the Wall Street Journal that interest rate ''movements can go both ways.'' He said earlier statements had been over-interpreted, according to the newspaper. 'Watering Down' ''European officials are watering down what they said yesterday about the balance of risks of the interest rate outlook,'' said Mike Moran, senior currency strategist at Standard Chartered Bank in New York. ''They are worried those hawkish comments will add greater volatility in the euro versus the dollar.'' The Group of Seven nations didn't discuss buying dollars to boost the currency at their April 11 meeting, said Canadian Finance Minister Jim Flaherty in an interview from New York on Bloomberg Television.[6]

April 22 (Bloomberg) -- The euro climbed against the dollar to within a cent of a record high after European Central Bank governing council member Christian Noyer signaled policy makers may raise interest rates.[8] The euro rose to $1.592, from $1.591, during afternoon trading in Europe on Tuesday, recovering from an early-morning drop to $1.58. The European Central Bank chose to ramp up its hawkish stance on inflation, with governing council member Christian Noyer even hinting in a radio interview that a hike in interest rates was still possible. "We will do what we must," Noyer was quoted as saying, explaining that the central bank would act to bring inflation down to below its 2.0% target.[9] In Europe, hawkish European Central Bank inflation comments supported the euro after ECB Governing Council member Klaus Liebscher said there was no reason for pessimism on euro zone growth, suggesting the ECB will maintain interest rates at a six-year high.[10] ING analyst Carsten Brzeski added: "With a further deterioration of the growth outlook for Germany and the euro zone, we expect ECB (European Central Bank) rate cuts in the second half of the year." The euro was already under pressure after French central bank chief Christian Noyer had said on Wednesday that eurozone interest rates could "move in both directions."[11]

The ECB's inflation rate stood at 3.6 percent in the year to March, way ahead of the central bank's target of around 2 percent. That stoked market talk that the ECB's next interest rate move may actually be up, prompting a sharp retreat in European issues, particularly at the front- end. Noyer told the Wall Street Journal that his comment was taken out of context, with the newspaper reporting him as saying 'I would never engage in a discussion about the future path of interest rates, simply because nobody knows. In the UK, gilts were also up, but by much smaller margins after news that retail sales fell at their fastest pace in more than a year in March.[12] NEW YORK (AP) — The euro roared to another record high Tuesday, crossing $1.60 for the first time ever after a pair of European Central Bank governors said high inflation may cause the bank to raise interest rates.[4] NEW YORK -- The dollar dropped to a new low against the euro Tuesday, as the single currency climbed above the symbolic $1.60 level on growing expectations for an increase in the European Central Bank's benchmark interest rates.[13] The 15-nation currency bought $1.5896 in late New York trading, below the high of $1.6018 it reached Tuesday after a pair of European Central Bank governors suggested that interest rates would go higher if inflation was not stemmed.[14]

The dollar has been weighed down by a combination of gloomy U.S. economic data and high European inflation — fueling expectations that the Fed will cut interest rates yet again while the European Central Bank will leave rates unchanged. Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn better returns, while higher rates are used to curb inflation.[4] "One of the significant drivers today, and an underlying theme in recent dollar trade, is that the market expectations are really starting to shift away from further rate cuts from the Fed and we're seeing more concern about inflation in the euro zone," said David Solin, a partner at Foreign Exchange Analytics in Essex, Conn. The dollar has been weighed down by a combination of gloomy U.S. economic data, rate cuts by the Federal Reserve and high European inflation, which has kept the ECB from reducing its own rates. Lower interest rates can weigh on a nation's currency as traders transfer funds to places where they can earn better returns, while higher rates are used to curb inflation.[15] The dollar has been weighed down recently by a combination of gloomy U.S. economic data and high European inflation. That has fueled expectations that the Federal Reserve will cut interest rates yet again while the ECB leaves rates unchanged _ or even raises them, a possibility that was deflated by Thursday's Ifo survey.[16]

FRANKFURT (Thomson Financial) - European Central Bank President Jean-Claude Trichet said there have recently been'sharp fluctuations' in exchange rates and the ECB is concerned about their possible implication for financial and economic stability. Speaking to reporters on the sidelines of an ECB conference, Trichet said: 'More than ever, what is said by the U.S. authorities at the level of President, Minister of Finance, and (U.S Federal Reserve Chairman) Ben Bernanke on the fact that a strong dollar is in the interest of the united states, is very important,' he added. Trichet also said that the ECB's current monetary policy stance 'will contribute to achieving our objectives, which is price stability' and that this will help 'anchor inflation expectations'.[17] FRANKFURT (Thomson Financial) - European Central Bank executive board member Juergen Stark said the ECB's 'current monetary policy stance will contribute to achieve our medium-term objective' of ensuring price stability. Speaking to reporters on the sidelines of the ECB's fourth conference on statistics, Stark said that since 2005, the ECB had raised rates by 200 basis points and that these interest rates are still working their way through the economy. 'This is working through,' Stark said, adding that the current level of interest rates will have an impact in the 'quarters to come', without providing further detail.[18] FRANKFURT (Thomson Financial) - European Central Bank Governing Council Member Axel Weber said the ECB will monitor 'very closely' all developments in the coming weeks and decide whether the current interest rate levels will help the bank fulfil its maintain to maintain price stability. Speaking at a seminar in Munich, Weber said the Governing Council has always stressed its top priority is to firmly anchor the medium and long-term inflationary expectations. 'Therefore we will continue to monitor very closely all developments in the next weeks and decide whether the current levels of interest rates guarantee the fulfilment of our mandate,' he added.[19]

"No one thinks interest rates should be higher than 4 percent,'' ECB council member Michael Bonello, who heads Malta's central bank, said today. "It's very difficult to make the argument for higher interest rates.'' Business confidence in Germany and France, which account for about half the euro-region economy, slumped this month as record oil and food prices stoked inflation, reports showed today.[20] European Central Bank President Jean-Claude Trichet told reporters at a conference in Frankfurt that the bank is concerned that the euro's surge to a record against the dollar may hurt Europe's economy. The euro has appreciated 7 percent this year against the dollar on speculation inflation will discourage the ECB from lowering borrowing costs from a six-year high of 4 percent.[21] While business confidence in the 15-member eurozone's largest economy, Germany slumped more than forecast in April, the mood among industry leaders in the currency's bloc second biggest economy, France dropped to a 16-month low this month amid signs of an increasingly brittle economic mood in Europe. 'After a brief brightening at the beginning of the year, the survey results indicate a slower pace of business activity,' said Ifo chief Hans-Werner Sinn releasing his institute's latest survey of 7,000 German executives, as a result adding to the pressure on the European Central Bank to begin paving the way for a rate cut. 'The retarding forces evident since mid-2007 have gained strength again,' with the euro's climb this week to an all-time high of more than 1.60 dollars helping to spark renewed worries about the impart of the strong currency on Europe's key export machine.[22] Demand for the European currency also fell after comments by European Central Bank Governing Council member Christian Noyer dampened speculation of further rate increases by the bank. The RBC/NTC Eurozone Purchasing Managers Index for manufacturing dropped to 50.8 in April, its lowest in nearly three years. German manufacturing activity also fell, although both German and euro zone readings for the service economy rose.[23] The euro pierced a record high above $1.60 on Tuesday after hawkish comments from ECB Governing Council members Christian Noyer and Yves Mersch prompted investors to speculate whether the central bank's next move would be a rate hike rather than a cut. However Noyer later said the markets had read too much into his comments, the Wall Street Journal reported, and this prompted investors to pare back more aggressive long positions in the euro.[24] The contrasting stances by the world's two most important central banks helped push the euro to a record $1.60 yesterday. "They're not threatening an immediate rate hike, but the hawks are framing the debate now,'' said Nick Kounis, an economist at Fortis Bank NV in Amsterdam who expects the ECB's next step to be an increase in mid-2009. The stronger rhetoric "has been forced on them by the fact that headline inflation has surprised significantly.'' The ECB last month forecast that inflation would average about 2.9 percent this year and 2.1 percent in 2009.[25]

The euro rose above 1.6000 U.S. dollars on Tuesday as two European Central Bank (ECB) governors indicated that the ECB might raise rates if inflation didn't subside. The dollar climbed back late Tuesday after one of the officials said that his comments had been over interpreted.[26] April 23 (Bloomberg) -- The euro traded within a cent of the record against the dollar after European Central Bank officials said they'll increase interest rates from a six-year high if inflation doesn't slow.[27] Even some of the much richer original euro members are struggling to meet inflation and debt targets. Nations that adopt the currency also effectively cede control over monetary policy to the Frankfurt-based European Central Bank, which means they give up the power to spur growth during downturns, for example by slashing interest rates, or to control inflation by raising them.[28] BusinessEurope said oil prices have increased by 75 percent over the last 12 months in dollar terms but only by 50 percent in euro prices. The group said some two-thirds of its national business association members believe the European Central Bank has been too restrictive in keeping interest rates on hold at 4 percent since last June.[1] The Ifo, coupled with a slump in euro zone manufacturing PMI to near-economic-contraction levels on Wednesday, suggested that the euro zone may not be immune to a U.S.-led economic slowdown. The data poured cold water on nascent market expectations of a European Central Bank interest rate hike this year, which have been generated by continued hawkish rhetoric from inflation-focused European Central Bank policy-makers.[29] LONDON - Just when it looked like the euro's recent strength was flagging early on Tuesday, the new threat of a hike in interest rates by the European Central Bank put the single European currency back on track to break the $1.60 barrier.[9] April 24 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said he's concerned the euro's gains will hurt Europe's economy and signaled interest rates are high enough to curb inflation.[20] April 22 (Bloomberg) -- European Central Bank council members Christian Noyer and Yves Mersch signaled the bank may have to raise interest rates to contain inflation.[5] Demand for the European currency slid further after comments by a member of European Central Bank Governing Council, Christian Noyer, dampened speculation of further interest rate increases by the bank.[30]

LONDON, April 23 (Reuters) - The euro retreated from a record high set the previous session versus the dollar on Wednesday after a European Central Bank policymaker toned down earlier hawkish comments on interest rates.[31] PARIS -- A European Central Bank policy maker whose remarks helped send the euro soaring Tuesday told The Wall Street Journal that his comments -- which markets read as suggesting the ECB could be leaning toward raising interest rates -- had been overinterpreted.[32] None of the ECB's policy makers think price pressures are strong enough to justify raising borrowing costs, said Michael Bonello, a council member and governor of the Maltese central bank. "No one thinks interest rates should be higher than 4 percent,'' he said today in Malta. "It's very difficult to make the argument for higher interest rates.''[33] ECB policy makers including Axel Weber and Juergen Stark have suggested the central bank may have to raise interest rates to curb inflation, which accelerated to 3.6 percent last month, the fastest pace in almost 16 years.[34] The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, has risen 37 percent in the past year, with commodities including oil, corn and rice hitting records. The Frankfurt-based ECB on April 10 kept its key rate at a six-year high of 4 percent, and President Jean-Claude Trichet said current policy will help the bank achieve price stability. Policy makers including Weber have said they're not sure rates are high enough to contain inflation. The ECB will "monitor very closely all developments in the coming weeks and decide whether the current level of interest rates ensures we'll meet our objective'' of controlling inflation, Weber, who heads Germany's Bundesbank, said this week.[25]

The euro rose for the first time in three days amid a growing view that the ECB is in no hurry to cut interest rates from 4.0 percent for now due to nagging inflation risks. Strauss said traders may attempt to push the euro through $1.60 this week.[10]

Eurozone interest rates have stayed at 4.00% since last June, while the United States Federal Reserve has slashed American rates to 2.25% in a bid to revive the flagging economy. It is this interest-rate differential that could take the euro past the $1.60 barrier, and even $1.65, according to Global Insight's chief European economist, Howard Archer. "At the same time," he told Forbes.com, "the dollar remains under pressure from concerns over the U.S. economy and likely further Fed cuts."[9] The euro has hit a record peak against the U.S. dollar on expectations of higher interest rates in the euro zone. It rose as high as $1.6019 as weak U.S. housing market data underscored fears over the health of the U.S. economy.[35] NEW YORK -- The dollar is extending its gains Thursday on the back of weak euro zone economic data and improved U.S. figures that are causing a shift in interest rate expectations in both the U.S. and the euro zone.[36] NEW YORK (Reuters) - The euro had its biggest drop against the U.S. dollar in three weeks on Wednesday as soft economic data and comment from European policy-makers indicated the weaker U.S. currency is hurting euro zone economic growth.[30]

The dollar rose versus most of the major currencies as orders for U.S. durable goods excluding transportation equipment increased more than forecast in March. The New Zealand dollar weakened after the central bank signaled it may lower the official cash rate later this year. "The data made a lot of people reassess their views of the euro,'' said Jens Nordvig, a strategist at Goldman Sachs Group Inc. in New York.[21] The dollar rose against the yen on speculation the Federal Reserve will pause cutting rates after next week. The New Zealand dollar slid after the central bank signaled it may lower borrowing costs later this year.[33] The greenback was supported by renewed confidence on Wall Street where stocks rebounded overnight on robust earnings news from Boeing and as two big U.S. insurance firms announced merger plans. Muramatsu said the optimism could prove short-lived as jitters about the U.S. economy and the health of its financial system persist, with banks still reluctant to lend to each another amid a global credit crunch. "There is a negative downward spiral because higher borrowing costs will pressure corporate earnings which will then affect the overall economy," he said. Market players expect the U.S. Federal Reserve to lower its benchmark rate by 25 basis points next week, which would be a smaller cut than at previous meetings where the central bank had slashed rates by 50 or 75 basis points.[37] The dollar was little changed at 103.27 per yen. The Canadian dollar declined on speculation the nation's central bank will cut its main rate to the lowest level since December 2005, to help boost the economy as exports fall to the U.S., the nation's biggest trading partner. The central bank will cut its main rate to 3 percent, according to economists in a Bloomberg News survey. The Canadian dollar, nicknamed the loonie after the image of the bird on its one-dollar coin, dropped 0.2 percent to C$1.0073 per U.S. dollar, from C$1.0054.[8] "The $1.58 level was key and now we've broken that,'' Elliot said from London. "I think we've seen the high for the week and now it's a question of how far we drop.'' The dollar advanced on speculation the Fed is almost finished cutting its benchmark rate after 3 percentage points of reductions since September, to 2.25 percent. Futures on the Chicago Board of Trade show an 86 percent chance the U.S. central bank will cut its benchmark by a quarter- point on April 30.[33] The U.S. central bank has lowered the fed funds target by 3 percentage points since September to 2.25 percent to prevent the economy from tipping into a recession. The ECB has kept its benchmark unchanged at 4 percent since June. Futures on the Chicago Board of Trade show the odds of the Fed cutting its target rate by a quarter-percentage point are 84 percent.[38]

Eonia swap contracts, a widely used market gauge of interest- rate expectations, rose to 4.1 percent yesterday, up from around 3.2 percent in mid-March. "The market is starting to quickly re-price its rate expectations as it realizes it was wishful thinking to have thought the ECB would follow the Fed in cutting,'' said Guillaume Menuet, an economist at Merrill Lynch & Co. in London, who predicts the ECB will leave its key rate unchanged through 2009. The Fed has lowered its benchmark rate by 3 percentage points since mid-September, taking it to 2.25 percent, as the U.S. economy teetered on the brink of a recession. The Bank of England on April 10 pared its key rate for the third time, to 5 percent. The Bank of Canada yesterday lowered its benchmark rate by half a point to 3 percent.[25]

Markets have hoped that the bank would lower rates much like the U.S. Federal Reserve Bank, Bank of England and Bank of Canada have done. The euro hit its last record of $1.5982 Thursday but dropped back after a Wall Street rally generated optimism that the worst of the U.S. credit crunch may be over. The euro was rejuvenated this week Bank of Americas first-quarter earnings fell short of expectations. More concerns about the health of the U.S. economy came Tuesday after the National Association of Realtors reported that sales of existing single-family homes and condominiums dropped by 2 percent in March, the seventh such drop in the past eight months.[14] The 15-nation currency, which was introduced in 1999, has traded as low as 82 cents. It has surged recently, rising 20 cents against the dollar in just five months and 10 cents in just two months. The euro hit its last record of $1.5982 Thursday. It dropped back Friday after a Wall Street rally generated optimism that the worst of the U.S. credit crunch may be over, but the euro rose again Monday when Bank of America's first-quarter earnings fell short of expectations. The dollar's slump is a boon for U.S. companies that rely heavily on exports, but it's the bane of travelers as worldwide inflation rises, air fares climb and prices rise in dollar terms for everything from beer in Munich to fine wine in Paris to gondola rides in Venice.[4]

"Bank of America's results obviously don't help the dollar and we also have the ECB making comments suggesting rates may remain steady." The euro zone single currency rose to a record $1.5983 on April 17, its highest since its inception in 1999, according to Reuters data.[10]

NEW YORK, April 22 (Reuters) - The euro traded near record highs on Tuesday as surging oil prices and hawkish comments from European Central Bank officials supported the view benchmark rates in the region are not likely to come down soon.[39] Oil prices shot up to a record high just short of 120 dollars a barrel. High energy and food prices are casting doubts on hopes that European private consumption will gain ground this year and consequently help to offset any fall in trade resulting from contracting global growth and the strong euro. Business confidence in Belgium, which is considered by economists to be a key European indicator because of the nation's close economic links across the eurozone, chalked up its biggest fall in about 28 years, the nation's central bank said Wednesday.[22]

April 23 (Bloomberg) -- European Central Bank officials are raising the prospect of interest-rate increases for the first time since the global credit squeeze began last August, stepping up their battle to keep inflation in check. Comments by policy makers including Axel Weber and Christian Noyer are forcing investors and economists into an about-face after they previously bet the bank would follow the U.S. Federal Reserve in cutting rates to shore up growth.[25] The 15-nation currency surpassed $1.60 yesterday as oil surged above $119 a barrel and Federal Reserve Bank of Dallas President Richard Fisher said inflation is starting to grip U.S. consumers. South Africa's rand appreciated against all of the major currencies on bets rising consumer prices will force the central bank to increase its target lending rate.[27] Last month's rise in inflation pushed consumer prices further away from the ECB's 2 per cent annual target. Signs of a less confident economic mood emerging in Europe's key economies could force the ECB to change its tone in the coming months and to begin considering following the world's other major central banks, notably the U.S. Federal Reserve along the path towards lower borrowing costs.[22]

South Africa's rand rose against all of the major currencies yesterday on bets inflation will force the central bank to raise borrowing costs, increasing the currency's interest-rate advantage. The Pretoria-based bank lifted its lending target for a fifth time in 10 months on April 10, increasing it a half- percentage point to a five-year high of 11.5 percent.[27]

'Inflation concerns and fears that the prospects of an ECB rate cut are as remote as ever are continuing to weigh on the bond market,' said John Ratcliffe at Thomson IFR Markets, adding that shorter-dated bonds have come under heavy pressure as a result. These concerns were highlighted by ECB governing council member Yves Mersch, who said in an interview with Tuesday's Financial Times Deutschland that the central bank may revise its inflation projections up and its growth outlook down. 'At the moment, it is more likely that in June we have to adjust upward our inflation projections,' he told the paper.[40] In the wake of recent hawkish comments from European Central Bank (ECB) officials and rising commodity prices, the chances of an interest rate cut in the region any time soon look increasingly slim.[40] Any change to the banks rule book would require unanimous agreement. During his election campaign Berlusconi laid much of the blame for his countrys economic difficulties on the ECB. "It is clear that something is not right in the interest rate policy of the European Central Bank," Berlusconi said in an interview with Panorama, a magazine owned by his Fininvestcompany.[41] April 23 (Bloomberg) -- Growth in European service industries from airlines to financial services unexpectedly accelerated in April, lending weight to the European Central Bank's threat to raise interest rates. Royal Bank of Scotland Group Plc said a preliminary estimate of its services index rose to 51.8 from 51.6 in March.[34]

The dollar edged up to 103.65 yen after 103.51. The euro retreated after French central bank chief Christian Noyer said Wednesday eurozone interest rates could "move in both directions."[37] The dollar advanced 0.5% to 103.53 yen, from 103.02. The single currency has risen 8.9% this year against the dollar on speculation inflation will discourage the European Central Bank from lowering its 4% main refinancing rate.[6] April 22 (Bloomberg) -- European Central Bank governing council member Christian Noyer said the bank will act to restrain consumer prices if inflation doesn't slow next year.[42] The Bank of France's Christian Noyer joined other officials from Europe yesterday in airing concerns about the faster rise in consumer prices and that the central bank will do whatever is necessary to keep a lid on inflation.[43]

The ECB will "move rates'' if needed to push inflation below 2 percent in 2009, Noyer, who heads France's central bank, told RTL radio today.[5] April 22 (Bloomberg) -- European Central Bank policy maker Yves Mersch has doubts about whether inflation will slow to just under 2 percent in 2009 as the bank forecasts, Financial Times Deutschland reported.[44] Luxembourg central banker Mersch said the question of whether the ECB should raise rates is a valid one, the Financial Times Deutschland reported, citing an interview. The Frankfurt-based ECB on April 10 kept its key rate at a six-year high of 4 percent and President Jean-Claude Trichet said current policy will help the bank achieve price stability. Policy makers including Axel Weber and Juergen Stark have said they're not sure rates are high enough to contain inflation, which accelerated to 3.6 percent last month.[5]

The primary objective of the ECBs monetary policy is to maintain price stability and the bank aims at inflation rates of below, but close to, 2 percent over the medium term.[41]

The ECB is concerned that faster inflation will feed into wage demands, triggering a wage-price spiral. "We're warning all companies and executives of the euro area that they mustn't move wages and margins as if inflation were to stay at 3.5 percent,'' Noyer said. "They must adjust to our target of less than 2 percent, which is the level at which I hope French prices will fall back around the end of the year, and euro zone prices during next year.'' The French government target for economic growth of 1.7 percent to 2 percent for this year is "maybe a bit optimistic,'' Noyer said.[42] French inflation jumped to a 12-year high of 3.5 per cent last month with consumer prices in Germany accelerating to more than 3 per cent. Eurozone economic growth is expected to slip to well below 2 per cent this year after the currency bloc's economy expanded by 2.6 per cent in 2007. With eurozone inflation having leapt to a record high of 3.6 per cent last month, the ECB has up until now insisted that fighting inflation remained its first priority and as a consequence was in no rush to trim borrowing costs in the currency bloc.[22]

"The euro represents a pretty significant threat to the European economy.'' A 1 percentage point increase in the euro's real exchange rate reduces growth in the region's exports by 0.6 percent within a year, according to a note this month from Deutsche Bank AG, the biggest currency trader.[21] With signs that the euro zone's largest economy is slowing, and the outlook for growth in the rest of the single currency zone looking less than rosy, inflationary pressures should eventually ease, in turn becoming less of an issue for the ECB. 'The euro zone economy looks like it's going to slow markedly year-on-year and that should create medium-term disinflationary pressures, which should offset the inflationary pressures coming from oil and commodities at the moment,' said Page. European bonds were already higher ahead of the Ifo survey after the Bank of France's Christian Noyer 'clarified' some remarks he had made previously to give them a slightly less hawkish gloss.[12] The evidence of weak business confidence in what is viewed to be the euro zone's most robust economy comes on the back of Wednesday's weak PMI survey of the manufacturing sector, and a disappointing performance recently in the retail sector. Should the German economy continue to falter, the European Central Bank may soon have to review its current hawkish stance, especially given that there have already been signs of declines in the rest of the euro zone. 'If this last bastion is about to fall, the ECB could run out of arguments for its hawkishness,' said Brzeski.[12]

FRANKFURT (Thomson Financial) - European Central Bank executive board member Juergen Stark said that since the start of the financial market crisis, the ECB's monetary analysis has proven to be 'a crucial bulwark for the conduct of monetary policy in the euro area'.[45] With the ECB still uncomfortable with the current high inflation levels, the central bank cannot immediately consider easing monetary policy for fear of exacerbating inflationary pressures in the single currency zone further.[12]

The single currency had risen on Tuesday after Noyer, who is also a member of the ECB governing council, said that the bank was ready to move on rates if necessary and aimed to bring inflation back below 2.0 percent next year.[11] Bank of France Governor Christian Noyer, a member of the ECB's governing council, was the latest official to suggest ECB rate increases could be on the table. On Tuesday he said the bank is prepared to raise interest rates to bring inflation below the 2% level in 2009.[13] "Our big problem is to make sure that inflation falls back below 2 percent next year,'' the Bank of France governor said in an interview on RTL radio. "We'll do what it takes for that,'' he said, adding, "If needed, we'll move rates.'' Noyer later told the Wall Street Journal that interest rate "movements can go both ways.'' He said his earlier statements had been overinterpreted, according to the newspaper. His colleague, Bank of Greece Governor Nicholas Garganas, said at a news conference in Athens that inflation will "remain high'' in the coming months and isn't expected to fall at a "rapid pace'' in the second half.[27]

Germany's Ver.di union last month negotiated a settlement for as many as 2.1 million public-sector staff that it said was worth 8.9 percent over two years. The German chemical-workers' union last week settled a new contract that raises wages 4.4 percent this year and another 3.3 percent in 2009. "It would be very challenging for the ECB to lower interest rates, particularly in the months ahead,'' said Julian Callow, chief European economist at Barclays Capital in London. "As for rate increases, they can't be ruled out.''[25] The target lending rate will be increased by a quarter-percentage point to 5.5 percent, according to all but one of the 24 economists surveyed by Bloomberg News. The euro has surged 1.2 percent in April and 9.5 percent this year against the dollar on speculation inflation will discourage the ECB from lowering its 4 percent main refinancing rate.[27] "On the consumer side we are still seeing quite strong employment growth and wage growth is accelerating quite strongly,'' said Nick Kounis, an economist at Fortis Bank in Amsterdam. The euro has gained 9 percent against the dollar this year as the rate gap between the U.S. and Europe widens.[34] The U.S. dollars slide against other world currencies has seen the euro climb some 8 percent since the start of the year, making German cars, French champagne and Italian handbags more expensive for American shoppers. The 15-nation European currency hit a new high of US$1.6018 on Tuesday before sinking on signs of lower growth in France and Germany this year.[1]

"Interest rate differentials are really favouring the euro right now," said Camilla Sutton, a currency strategist at Scotia Capital in Toronto. That followed similar comments from fellow governing council member Yves Mersch. While the strong euro may be good news for many savers and investors, it poses problems for European exporters because it makes their products more expensive in the United States, a key sales market. Airbus announced a rise in prices across its range of aircraft, blaming high metals prices and the weakness of the U.S. dollar.[35] Rising inflation stemming from soaring food and energy prices came firmly into view as U.S. crude oil hit a historic high, topping the $118 per barrel mark CLc1. This gave added impetus to inflation-busting talk from ECB policymakers, determined to contain the impact of rising prices. That followed comments from Governing Council member Yves Mersch, who said the ECB has to ask itself each month whether a rate rise is needed to control inflation. "We have been hammered by hawkish comments from ECB members overnight and during the past week, aggressive comments suggesting that not only is the ECB planning to leave rates on hold, but they are also actively considering raising rates to stamp on inflation," said Teis Knuthsen, head of FX research at Danske Markets in Copenhagen. "That puts a certain perspective on the relative economic stance between the U.S. and the euro area," he added.[46]

The latest surge followed public comments by two ECB governors, who said interest rates in the euro zone could rise if mounting inflation was not curtailed.[41] European bonds declined after Noyer's comments, pushing the yield two-year German government notes pay over similar dated Treasuries 6 basis points wider to 168 basis points, boosting the appeal of euro-denominated assets. His colleague, Nicholas Garganas said the ECB won't reduce interest rates if inflation remains high. Inflation will "remain high'' in the coming months and isn't expected to fall at a "rapid pace'' in the second half, he said at a press conference in Athens.[8] The dollar rose against the euro as the extra yield that two-year German government bonds pay over similar dated Treasuries narrowed to 1.63 percentage points from 1.84 percent on March 31, reducing the appeal of euro-denominated assets. "Spreads have been stabilizing and this should be a source of support for the dollar,'' analysts at UBS AG wrote in a research note dated today. "We think downside risks to activity stemming from credit problems will overwhelm inflation concerns'' at the ECB, they wrote.[47]

The Australian currency rose to a 24-year high against the dollar after a government report showed inflation accelerated above 4% for the first time in seven years. ''European policy makers are trying to calibrate their policy and their words to ease the euro down,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. ''It's really a dangerous level to sell the dollar.''[6] The 15-nation currency strengthened against the dollar yesterday as ECB governing council member Christian Noyer said policy makers will act to restrain consumer prices if inflation doesn't slow.[27]

Britain's pound drifted lower against the dollar to $1.9803 from $1.9952 in late New York trading Tuesday after minutes from the Bank of England's last Monetary Policy Committee meeting showed concern about inflation there in the face of a weaker pound and higher utility and food costs.[15] The British pound drifted lower to $1.9803 from $1.9952 the night before after minutes from the Bank of Englands last Monetary Policy Committee meeting showed that concern about inflation there in the face of a weaker pound and higher utility and food costs. "Certainly, inflation expectations have risen recently, while latest surveys show that companies are currently very keen to raise their prices to support their margins," said Howard Archer, chief UK and European economist at Global Insight.[14]

The dollar was down against the Japanese currency, dropping to 103.09 yen from 104.17 yen. The high euro is bound to cause more pain for European manufacturers who export cars, food, wine and other products to the United States because it means their goods are more expensive. Airbus, a unit of European Aeronautic Defense and Space Co. announced a general price increase for its aircraft of an additional $2 million per single-aisle aircraft and $4 million per wide-body long range and A380 family aircraft as of May 1, citing the high euro and the cost for raw materials.[4] The latest evidence of the strain imposed by the rising euro came from Airbus, which faces unique difficulties among European companies. Not only is its main product - aircraft - priced in dollars, but it is constrained politically from moving large portions of production out of Europe to alleviate the currency pressure. The plane maker has joint management in France and Germany and thousands of jobs in both countries. Airbus said its price increases - up to $4 million on the flagship A380 superjumbo jet - would go into effect on May 1. It cited the falling value of the dollar and the rising price of commodities like steel and aluminum used to make airplanes.[41]

The dollar rebounded Wednesday from a record low against the euro as weak European economic data led investors to believe Tuesday's dollar selloff was overdone. The single currency climbed Tuesday to $1.6020 -- its highest level ever -- but Wednesday fell to as low as $1.5860, hurt by a manufacturing index for the euro region that dropped to a three-year low in April.[48] The euro fell the most against the dollar in three weeks after Luxembourg's Finance Minister Jean- Claude Juncker signaled concern that the pace of the U.S. currency's decline will take a toll on economic growth. The 15-nation euro retreated from a record as Juncker said he didn't like ''the way things are developing'' in foreign- exchange markets and oil fell below $US118 a barrel.[6]

The U.S. currency got a boost from an unexpected drop in initial jobless claims last week. The New Zealand dollar declined 1.2 percent to 78.92 U.S. cents as the Reserve Bank of New Zealand left its benchmark lending rate at a record high of 8.25 percent.[21] The balance of bets is for no reduction. The Dollar Index traded on ICE futures in New York, which tracks the U.S. currency against those of six trading partners, rose as much as 0.8 percent to 72.25, the highest since April 18, and was at 72.29, from 71.819 yesterday. It dropped to a record of 70.698 on March 17.[33] In late trading in New York, the euro was down 0.6 percent at $1.5893, after falling as low as $1.5862 earlier. The European currency traded at a record $1.6019 on Tuesday, according to Reuters Dealing 3000, the highest level since its inception in 1999.[30] The euro fell 0.9 percent to $1.5750 per dollar at 7:13 a.m. in New York, from $1.5889 yesterday. It traded at $1.6019 on April 22, the highest level since its 1999 debut.[33]

NEW YORK -- The dollar rose against its major rivals Wednesday, taking back some ground a day after the euro topped $1.60 for the first time.[15]

NEW YORK, April 23 (Reuters) - The euro retreated from a record versus the dollar on Wednesday after a fall in manufacturing activity suggested that economic growth in the euro zone is starting to slow.[23]

The cost of borrowing euros for three months has surged the most in four months, with the Euribor rate increasing to 4.82 percent yesterday compared with 4.37 percent on Feb. 22, the European Banking Federation said. Growth in Europe's manufacturing activity slowed more than forecast in April, while a gauge of growth in services industries such as banking and telecommunications unexpectedly rose. The International Monetary Fund estimates growth in the 15- nation euro region will slow to 1.4 percent this year from 2.6 percent in 2007.[25] The currency reached a record $1.60 yesterday. It initially rose on the PMI report before settling at $1.5966 at 12:30 a.m. in Frankfurt. Exports from Germany, Europe's largest economy, will grow 5 percent this year, the BGA industry group said today, maintained its sales forecast in spite of the euro's gains.[34] "The market is giving some credibility to Noyer backing off hawkish comments, it seems there's more sensitivity to interest rates," said Adam Cole, global head of currency strategy at RBC Capital Markets. The euro is up more than 9 percent this year and its breach of $1.60 prompted chairman of the Eurogroup of finance ministers Jean-Claude Juncker to say the euro's exchange rate is excessively volatile, which also prompted a slight dip in the euro.[31] The euro also edged lower to 164.50 yen, off a four-month high of 164.95 yen hit on Tuesday. The euro is up more than 9 percent this year and its breach of $1.60 prompted chairman of the Eurogroup of finance ministers Jean-Claude Juncker to say the euro's exchange rate is excessively volatile, which also prompted a slight dip in the euro.[24]

The government and National Bank of Slovakia have spent years trying to get the economy fit, putting spending on a diet, overhauling the tax system and earning praise from the World Bank for being "one of the fastest reformers in the world." The International Monetary Fund estimates that the country's economy will grow at 6.6 percent this year compared to less than 2 percent for the euro area as a whole. For the more than 800,000 people over 60 in the country, adjusting to a new currency (the euro would be their fourth currency in 20 years) might not be easy.[28] The dollar inched up against the Japanese currency, rising to 103.52 yen from 103.09 yen. It climbed to 1.0175 Canadian dollars from 1.0084 Canadian dollars, and gained to 1.0158 Swiss francs from 1.0028 Swiss francs. Renewed concern about the health of the U.S. economy came Tuesday after the National Association of Realtors reported that sales of existing single-family homes and condominiums dropped by 2 percent in March, the seventh such drop in the past eight months.[15] The dollar will come into focus later with the release of U.S. existing home sales, which are expected to have fallen to 4.950 million in March from 5.030 million the previous month. 'We saw a surprising rise in U.S. existing home sales last month but we suspect that this is a spike within a downtrend, not the sign of a recovery,' said Steve Barrow, chief currency strategist at Bear Stearns. (NYSE:BSC) London 0849 GMT Hong Kong 0500 GMT U.S. dollar yen 103.13 up from 103.03 Swiss franc 1.0073 down from 1.0081 Euro U.S. dollar 1.5942 up from 1.5915 pound 0.8045 up from 0.8027 yen 164.36 up from 163.91 Swiss franc 1.6062 up from 1.6040 Pound U.S. dollar 1.9815 up from 1.9812 yen 204.28 up from 204.15 Swiss franc 1.9960 down from 1.9980 Australian dollar U.S. dollar 0.9440 up from 0.9417 pound 0.4764 up from 0.4750 yen 97.34 up from 97.01 Copyright Thomson Financial News Limited 2008.[3]

NEW YORK, April 21 (Reuters) - The U.S. dollar slipped on Monday after unexpectedly weak profits from Bank of America dampened investors' optimism that U.S. financial companies may escape the pinch of the crisis in global credit markets.[10] The ECB comments reversed the brief dip that the euro saw against the dollar on Tuesday morning following news that a small German bank has run into trouble after the global financial crisis. German banking association BdB said it had transferred ownership of Duesseldorfer Hypothekenbank temporarily to its depositor guarantee fund, after which the bank will be sold to a third party.[3] The euro fell against the dollar after the Federal Association of German Banks took over Duesseldorfer Hypothekenbank AG, a German government and mortgage lender, the Financial Times Deutschland reported.[47]

April 24 (Bloomberg) -- The euro dropped against the dollar and yen as an industry report showed German business confidence fell to the lowest in more than two years in April, indicating the U.S. economic slowdown is spreading to Europe.[33] April 24 (Bloomberg) -- The euro dropped the most against the dollar since August 2004 and slumped versus the yen as German and French business confidence fell this month.[21]

FRANKFURT, Germany (AP) — The euro slid against the U.S. dollar on Thursday after surveys said business confidence in France and Germany was dropping amid fears of slower growth.[49] 'We expect the business climate will continue to fall,' said Commerzbank economist Matthias Rubisch as the strong euro as well as rising food and energy prices undercutting economic growth. Concerns about the economic fallout from renewed inflationary pressures, the strong euro and contracting global economic growth also resulted in an unexpected fall in investor confidence in Germany, the ZEW index released this month showed. A survey released this week by the Royal Bank of Scotland gauging the mood in Europe's manufacturing sector dropped more than expected.[22] Business confidence in Germany, Europe's largest economy, unexpectedly rose for a third month in March. "Both investment and consumption should continue to contribute to economic expansion as profitability has been sustained, credit growth remains robust and employment conditions have improved,'' ECB Vice President Lucas Papademos said this week.[34]

Europe's single currency also advanced before the release of a private report economists say will show U.S. sales of previously owned homes fell in March, reinforcing speculation the Federal Reserve will keep cutting borrowing costs to shore up the economy.[8] Europe's economy is holding up even as the U.S. teeters on the brink of a recession, forcing the Federal Reserve to cut borrowing costs.[34]

Weak data out of Germany has markets pricing out the odds of any rate hikes by the European Central Bank, while some better-than-expected U.S. data Thursday have erased any chances that the Federal Reserve may cut interest.[36] Futures on the Chicago Board of Trade show an 86 percent chance the U.S. central bank will cut the target rate for overnight lending between banks by a quarter-point on April 30.[21]

The Canadian dollar declined before a central bank meeting forecast to end with a half-percentage point cut in the benchmark rate. "In this environment the rhetoric from the ECB, especially the hardliners, remains strong and the market's taking that on board,'' said Jeremy Stretch, a senior market strategist in London at Rabobank International, the third-largest Dutch bank.[8] The U.S. central bank has lowered the fed funds target by 3 percentage points since September to 2.25%. Futures on the Chicago Board of Trade show an 82% chance the Fed will cut its benchmark by a quarter-percentage point on April 30.[6]

Noyer's comments underscore the Frankfurt-based central bank's reluctance to follow counterparts in the U.S. and U.K. to counter a slowing global economy by cutting borrowing costs.[42] Higher interest rates make bank deposits and other euro-denominated investments more attractive. Most other central banks are cutting the cost of borrowing as they look to limit the impact of a global economic slowdown.[35]

Weber said April 21 that rising wages as well as surging food and energy costs have increased inflation risks and the ECB must "decide whether the current level of interest rates ensures we'll meet our objective'' of maintaining price stability.[20] The ECB is worried about the euro's "sharp fluctuations'' and the "possible implication for financial and economic stability,'' Trichet told reporters at a conference in Frankfurt today. Current interest rates "will contribute to achieving our objective, which is price stability,'' he said, adding that's "the position of the Governing Council.''[20] Noyer's colleague Yves Mersch of Luxembourg said the ECB will have to raise the question "every month'' whether an increase in interest rates is necessary, the Financial Times Deutschland reported yesterday, citing an interview.[25]

The implied yield of the three-month Euribor future for December rose 0.12 percentage point to 4.59 percent yesterday. It has risen 0.61 percentage point this month as traders priced in the likelihood of an interest rate increase. The ECB has held its target lending rate steady since June.[27] In the UK, gilts were soft after the minutes to the last Bank of England policy decision, when the benchmark Bank Rate was reduced a quarter point to 5.00 percent, diminished market expectations that the Monetary Policy Committee will be cutting interest rates for the second month running in May.[43]

The rest of the odds are for no reduction. The Canadian dollar weakened after the Bank of Canada cut its target lending rate to 3 percent. Policy makers said they were projecting a deeper and more protracted slowdown in the United States, Canadas biggest trading partner.[38]

Norway's krone rose 0.8 percent to 4.9598 per dollar, close to the highest since 1980, and 0.3 percent to 7.9323 versus the euro before a meeting of the central bank today.[27] LONDON, April 22 (Reuters) - The euro rallied towards recent record highs on Tuesday as surging oil prices and hawkish rhetoric from European Central Bank policymakers overshadowed earlier concerns about the European banking sector.[46] "The German standpoint has been very clear, is clear and, dare I say, will remain clear," said Thomas Mirow, the deputy finance minister of Germany. He noted that the Maastricht treaty, which established the euro, "to a large degree was inspired by the experience" of the German central bank, the Bundesbank, which had price stability at the core of its mission.[41]

The biggest country in the 15-nation euro area, Germany, rejected fresh calls to dilute the inflation-fighting mandate of Europes central bank as a way to help rein in the soaring currency.[41] Despite the twin pressures of a strong currency and a slowing economy, the German government, long a staunch defender of central bank independence, said it categorically opposed a plea from the incoming Italian government for greater political control over the bank. During his campaign for prime minister, Silvio Berlusconi, who last week re-took the office, promised to forge an alliance with the French president, Nicolas Sarkozy, a long-time critic of the banks rigid, inflation-fighting mission.[41]

"We're currently keeping rates at 4 percent because it seems to be the appropriate level to curb prices,'' the French central banker said. It's "impossible'' that the surge of raw-material prices will continue, unless one thinks that they will rise "indefinitely'' and "ruin'' the global economy, said Noyer, who's also the Bank of France governor.[42] Stark said April 15 that the bank "cannot be sure'' the current rate level is sufficient to contain inflation. He said in Frankfurt today that the ECB's past rate increases are still working through the economy and will help to curb inflation.[20] If the PMI continues to fall, it "reinforces the ECB's current dilemma,'' said Sebastian Wanke, an economist at Dekabank in Frankfurt. "On the one hand they are faced with high inflation rates,'' on the other "the economy is weakening.'' Investors have all but priced out the possibility of an ECB rate cut this year, futures trading shows.[5] "There is a risk that the current, temporarily high annual inflation rates, which may persist for a rather protracted period of time, could have second-round effects on wage and price- setting,'' ECB Vice President Lucas Papademos told the European Parliament in Strasbourg late yesterday. The ECB currently predicts inflation will average about 2.9 percent this year and 2.1 percent in 2009.[5] The ECB defines price stability as inflation rate below but close to two percent. He said the latest round of wage deals coupled with the continuing increases of energy and food prices 'have increased risks that the inflation rate would remain at excessive levels'.[19] The ECB officials are reacting to a surge in oil and food prices, which pushed inflation to a 16-year high of 3.6 percent in March. They're concerned that faster inflation will feed into wage demands and prompt companies to pass on higher costs.[25]

The bank aims to keep the rate just below 2 percent. Mersch said the ECB may have to raise its inflation forecasts when it publishes its next set of projections in June.[5] Mersch said the inflation rate in the euro region will probably be higher than 3 percent until "late in the autumn'' and that there will be a "spillover effect'' into next year, according to FT Deutschland.[44] The 15-nation euro has risen 9.8 percent over the past year against a basket of currencies, according to an index from the Bank of England that's adjusted for inflation.[21]

The data "marked something of a watershed in terms of euro- dollar,'' said Adam Cole, head of global currency strategy in London at Royal Bank of Canada, the nation's biggest lender. "It makes euro gains much harder to come by'' and the currency may decline to $1.40 by the end of the year, he said. That compares with an average forecast of $1.48 in a Bloomberg survey.[33] The euro's decline against the dollar accelerated as some investors who piled into the currency yesterday anticipating more gains as it surpassed $US1.60 exited trades, according to Brian Dolan, chief currency strategist at FOREX.com, a unit of online trader Gain Capital in Bedminster, New Jersey.[6] "The market has started to price in the possibility of a rate hike from the ECB,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. "Given the momentum of this trade, we will at least move up to $1.6350.''[27] The euro bought $1.5707, down from the $1.5896 it bought in New York late Wednesday. It was the second consecutive day in gains, distancing the U.S. currency from its record low of $1.6018 reached Tuesday.[16] The common European currency was at $1.5963 per euro at 10:29 a.m. in London, from $1.5991 yesterday in New York, when it climbed to $1.6019, the highest since the currency's launch in 1999.[50] The euro dropped 0.6% to $US1.5894 at 2.42pm in New York, from $US1.5991 yesterday, when it climbed to $US1.6019, the highest level since the currency's 1999 debut.[6]

The euro traded as high as $1.5969 and was at $1.5930 as of 6:51 a.m. in New York, from $1.5912 yesterday. It climbed to a record $1.5983 on April 17.[8] Crude for June delivery dropped as much as 1 percent to $117.12 in after-hours electronic trading on the New York Mercantile Exchange, and was at $117.39 today. It rose to a record $119.90 on April 22.[33]

NEW YORK, April 24 (Reuters) - The dollar rose broadly on Thursday after government data showed better-than-expected readings on weekly jobless claims and last month's durable goods, indicating that the U.S. economy may be stabilizing.[29] Most of the moves in the dollar came early in the New York session and, without any new U.S. data or news, the dollar's direction was set for the remainder of the day.[30]

The euro fell to 1.5853 dollars in Tokyo afternoon trade from 1.5882 late on Wednesday in New York and to 164.32 yen from 164.42.[37] The yen rose to 163.47 per euro at 8:01 a.m. in London from 164.32 late yesterday in New York, when it fell to a three-month low of 164.86.[47]

In early European trading, the European single currency fell to 1.5749 dollars, from 1.5882 in New York late on Wednesday. It had struck a lifetime pinnacle of 1.6019 on Tuesday.[11] In midmorning European trading, the 15-nation currency bought $1.5749 — well below the high of $1.6018 it reached Tuesday and significantly short of the $1.5896 it bought in New York late Wednesday.[49]

In other New York trading, the dollar inched up against the Japanese currency, rising to 103.52 yen from 103.09 yen.[14] The euro bought 1.5896 dollars in late New York trading compared with 1.6000 dollars it bought late Tuesday.[26] NEW YORK, April 23 (Xinhua) -- The dollar regained some ground on Wednesday, a day after hitting record low against the euro.[26]

LONDON, April 22 (Reuters) - The euro retreated from a record high versus the dollar on Tuesday as concerns about the European banking sector weighed on the common currency despite more hawkish rhetoric from ECB policymakers. "It moved the euro lower because so far we've seen very little stress from European banks," said Adam Myers, market strategist at Credit Suisse. "I'm a bit surprised the fall wasn't deeper. and now people will be hunting round for other institutions in a similar predicament (which if they come to light) would lead to a more significant correction for the euro."[51] LONDON (AFP) — The European single currency fell against the dollar on Thursday, retreating further from this week's record high after a disappointing survey on business confidence in Germany, analysts said.[11]

LONDON (Thomson Financial) - European government bonds got a shot in the arm after a key survey of confidence in the area's biggest economy signalled a worrying slowdown. The German Ifo research institute said its April business climate index fell to 102.4 from 104.8 in March, well below analysts' forecasts of a more modest decline to 104.3.[12] Governor Alan Bollard said borrowing costs will be unchanged "for a time yet.'' Last month, he said the rate needed to stay high for a "significant time yet.'' The Munich-based Ifo institute said its German business climate index, based on a survey of 7,000 executives, fell to 102.4, from 104.8 in March.[21]

"We have to keep pace with the world market price developments and secure profitable deals," said John Leahy, the sales chief at Airbus. The parent of Airbus, European Aeronautic Defense Space, has been struggling to reduce the impact of unfavorable exchange rates on its results. It also has been trying to diversify its exposure and reposition its business to shift more costs into dollars.[41] BusinessEurope said the euros "sharp and rapid appreciation" versus the dollar risks hurting the European economy, particularly the heavy engineering and chemicals industries that measure costs in euros and sales in dollars.[1]

Net income fell to $1.21 billion, or 23 cents per share. Analysts said Bank of America's results suggest the fallout from the credit crisis may not be over as some have speculated, chilling the appetite for risk as such problems were expected to continue weighing on the U.S. economy and the dollar.[10] "The euro-area economy cannot remain insulated from the slowdown in the U.S. for too long, and support for the euro should wane,'' said Carsten Fritsch, a currency strategist in Frankfurt at Commerzbank AG, Germany's second-largest bank.[33] Speculators had taken the remarks as a hint at a possible ECB rate rise, and the euro, powered by fresh fears for the health of the U.S. economy, broke through the 1.60-dollar threshold for the first time on Tuesday.[11] Euro zone manufacturing activity fell to a near three-year low, the Purchasing Managers Index showed and export orders shrank for the first time since May 2005. This indicates that the currency's strength may be starting to impact the wider economy, though the data had little impact on the euro.[31] Jean-Claude Juncker, the chairman of the euro zone finance ministers, said the euro's exchange rate is now excessively volatile. "The euro zone is not insulated and economic data is beginning to show that," said Omer Esiner, a market strategist at Ruesch International in Washington, D.C. "The market may have gotten ahead of itself betting on a rate hike by the ECB. The euro now is overstretched and policy-makers are making it very clear they are not satisfied with it."[30] "The market may have gotten ahead of itself betting on a rate hike by the ECB," said Omer Esiner, a market strategist at Ruesch International in Washington. "The truth is that today's economic data out of Europe was pretty disappointing and Noyer backed off from his hawkish comments.[23]

Noyer's comments "need to be taken seriously, it means the ECB aren't going to be cutting rates anytime soon,'' Adrian Schmidt, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc, said in an interview on Bloomberg Television.[8]

The euro's initial pull-back on Tuesday came after bad news from Germany's banking sector, when the German banking association took over a Duesseldorf lender struggling to survive the current market environment. He told Forbes.com that the Eurozone in the second half of 2008 would see a scaling back of inflation and growth, enough to prompt a much-anticipated rate cut. [9] The euro has rallied in recent months and Tuesday's peak came as European central bankers raised the prospect of higher rates to control inflation.[35]

Surging food and energy prices pushed euro-region inflation to 3.6 percent in March, the fastest pace in almost 16 years, the European Union statistics office said last week.[42] A European Union report showed last week that annual inflation rose to a 16-year high of 3.6 percent in March.[27]

Inflation increased to a 16-year high of 3.6% in March, the European Union said last week.[6]

European policy makers have been wary inflation will quicken after the cost of crude surged 82 percent in the year. [33] Crude Oil Surge European policy makers are wary inflation will quicken on a 78% surge in crude oil from a year ago.[6]

Fed policy makers "will be biased toward a steady rate going forward and will probably express more concern about inflation," said David Cohen, director of Asian economic forecasting at Action Economics in Singapore.[37]

Executive Board member Stark said April 15 that the bank "cannot be sure'' whether the current rate level is enough to contain inflation.[5] "The market consensus is that the only way for interest rates to go is up because the main focus is on long term inflation worries in Europe," said Ryohei Muramatsu, manager of Commerzbank Group Treasury Asia in Tokyo.[37] The dollar has suffered because the Federal Reserve has cut interest rates sharply in recent months.[35] Gains in the dollar may be limited by speculation a housing recession will spur the Federal Reserve to lower interest rates.[47]

Vicky Redwood, economist at Capital Economics, agreed. 'The continued mixed news about the strength of the consumer sector boosts the chances that the MPC will proceed fairly cautiously in cutting interest rates,' she said, noting that the firm official data contrast markedly with downbeat surveys and other snapshots of the high street.[12] Japan's interest rates are 0.5 percent compared with 7.25 percent in Australia and 8.25 percent in New Zealand.[47]

Even so some market watchers believe an ECB interest rate hike remains likely because of elevated inflationary pressures.[37] "We increased interest rates by 200 basis points'' since December 2005, Stark told reporters. "This is the reason why we say up to now that the current monetary-policy stance will contribute to achieving our medium-term objective.''[20]

"Interest rate differentials are really favoring the euro right now," said Camilla Sutton, a currency strategist at Scotia Capital in Toronto.[39] "There are a lot of structural reasons for the euro not to weaken for some time,'' said Andrew Busch, a global currency strategist in Chicago at BMO Capital Markets, a unit of Bank of Montreal. "They are dying to raise interest rates.''[27]

Slovakia's finance minister and head of the national bank have told the European Commission that the country's target to adopt the euro is 1 January 2009. If all goes as planned, by July all prices in Slovakia will be listed in both currencies to ease the transition, and the country will inaugurate the new year with new coins and banknotes. "This duality will be in effect even all throughout 2009 when the euro will have already been introduced," explained Ivan Sramko, head of the National Bank of Slovakia.[28] FRANKFURT (Thomson Financial) - The European Central Bank said the outlook for both world and domestic food prices remains 'highly uncertain', with overall risks expected to be on the upside. 'Looking ahead, the outlook for both world and domestic food prices remains highly uncertain.[52] FRANKFURT (Thomson Financial) - European Central Bank President Jean-Claude Trichet said the ongoing financial market turmoil has shown the need for banks to enhance their risk management systems as well as for all market players to be more transparent.[53]

LONDON (Thomson Financial) - European government bonds remained in positive territory after a leading European Central Bank official 'clarified' remarks he made yesterday.[43]

Mersch, who is president of Luxembourg's central bank, told the German business newspaper that "one can always hope for that but whether it is realistic is another question.''[44] 'The special liquidity scheme has been quickly seen by the forex market for what it is - simply another central bank initiative to add liquidity to the moribund mortgage-backed securities (MBS) market,' said Steve Pearson, chief currency strategist at Bank of Scotland Treasury.[3] Elsewhere, the pound remained on the backfoot before Wednesday's minutes to the Bank of England's April 10 rate-setting meeting, as market players continued to view the central bank's latest plan with scepticism to help ease credit strains faced by the banking sector with a 50 billion pound lifeline.[3]

The U.S. housing slump has resulted in losses and writedowns at the world's biggest financial institutions of about $290 billion so far. That's made banks reluctant to lend, pushing up the cost of credit and threatening to slow global economic growth. [34] The yen gained as the MSCI Asia Pacific Index of regional equities fell 1 percent on concern widening credit losses will slow global economic growth and make banks reluctant to lend.[47]

UBS AG, the world's largest money manager, has "weathered the worst'' of the credit crisis, outgoing chairman Marcel Ospel said today. "The financial markets are also still far from normal, although the evidence suggests that we are gradually re- approaching normality,'' he said. The ECB says Europe's fundamentals are "sound'' and predicts "moderate'' economic growth this year.[34] Stark said that the recent financial market turmoil has re-emphasised the importance and special nature of the banking sector 'in the transmission of monetary policy and determination of macroeconomic outcomes'. 'Developments over the last few months surely demonstrate that banks play a distinctive role in creating 'monetary liquidity' that, in turn, is an important determinant of developments in credit and asset markets, in the evolution of the economy and ultimately of price dynamics', he said. Speaking to reporters on the sidelines of the conference, Stark also said the ECB is 'well positioned' with its analytical framework, which enabled it to react in a timely manner to the financial market crisis. 'We also have won valuable insights through the analysis,' he added. The ECB's monetary policy strategy is based on two pillars -- economic analysis and monetary analysis, but analysts said the latter's usefulness is being questioned in some quarters outside of the ECB.[45]

'We need to see some retracement in the pace of inflation before the ECB starts to think about supporting growth in the economy,' said David Page, an economist at Investec.[12] "Inflation expectations may recede rapidly'' if the IMF is right, Noyer told the Wall Street Journal in an interview late yesterday. Interest-rate moves "can go both ways.'' For now, inflation expectations, as measured by French inflation-indexed bonds, are rising, going above 2.3 percent this week from 2.1 percent a month ago, and fueling the ECB's concerns about so-called second-round effects.[25] The ECB aims to keep average inflation just below 2 percent, something it has failed to do every year since 1999.[20] "Our big problem is to make sure that inflation falls back below 2 percent next year,'' Noyer said today in an interview on RTL radio. "We'll do what it takes for that,'' he said, adding, "If needed we'll move rates.''[8] "If needed we'll move rates,'' France's Noyer told RTL radio yesterday. By contrast, on April 4, he said he was "absolutely certain'' inflation would drop below 2 percent at the end of 2008.[25]

Asked if the prospect of inflation remaining above 2 percent in 2009 supports the case for a rate increase, Mersch replied: "The question is completely justified,'' the FTD reported today.[5]

Mersch said euro zone inflation 'will likely be above 3.0 percent up to late in autumn'.[2] Across Slovakia, the chance to become only the second of the EU countries in Eastern and Central Europe to join the euro zone is being met with a combination of pride that the poorer half of the old Czechoslovakia has matured, and trepidation that the currency shift will be accompanied by higher prices.[28] The euro traded at $1.5996 at 6:11 a.m. in Tokyo, after increasing 0.5 percent yesterday, when it touched $1.6019, the highest since Europe's currency debuted in 1999.[27] Europe's currency may rise to $1.65 over the next week after breaching $1.60, said Greg Anderson, a foreign exchange strategist at ABN Amro Bank NV in Chicago, in a note to clients yesterday.[27] The comments, combined with a lackluster reading on U.S. existing home sales in March, helped push the European currency through the key $1.60 level.[7] "The U.S. data is still very weak and the dollar should continue falling,'' said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group, one of the world's top 10 currency traders. The U.S. currency may fall to 96 yen and $1.58 in three months, he said.[8] TOKYO (AFP) — The euro dropped against the dollar and the yen in Asian trade on Thursday after weak manufacturing data and comments by European financial officials, dealers said.[37] The dollar rose versus the euro and yen as the Commerce Department said bookings increased 1.5 percent for goods meant to last several years, outside of cars and planes, following a 2.1 percent decline for February.[21] Against the Australian dollar, the yen rose to 97 from 97.36. It gained 0.4 percent to 81.63 versus the New Zealand dollar.[47] The dollar rose 1 percent to 104.39 yen, from 103.38 yesterday, as the increase in durable-goods orders indicated demand from overseas may be helping factories weather the housing-led economic slowdown.[21]

The three-month London interbank offered rate, or Libor, for dollars rose to 2.92 percent yesterday, the highest since March 7.[47]

A 50 basis-point rate reduction by the Bank of Canada "should further drive some Canadian dollar underperformance,'' Daragh Maher, senior currency strategist in London at Calyon, the investment-banking unit of Credit Agricole SA, wrote in a client note.[8] "There is a long way to go for the U.S. housing slump to bottom out,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., Japan's third- largest bank by assets. "This could further increase subprime- related bad loans, pushing down the dollar.''[47] The currency gained against the Australian and New Zealand dollars, two favorites for so-called carry trades, after Bank of America Corp. reported worsening credit losses.[47]

Pis' income is nearly one-third higher than the average monthly pension of 8,885 crowns, or €275, a sum that is still small in a country that has moved from one of the most economically dour in the region just a few years ago to what the Economist Intelligence Unit has called a "shining star." Pis believes his relative fortune may come to an end if Slovakia abandons its currency, the crown, and joins the European Monetary Union next year. At the current exchange rate, his pension of 11,920 crowns will equal about €370--what he calls the "new money." "You mean those €300 I'll be getting a month? What will I do with three pieces of hundred-euro banknotes?" says Pis, a retired miner who also gets a disability benefit because of an injury suffered on the job.[28] Purchases of new homes fell 1.7 percent from the prior month to an annual rate of 580,000, according to a survey of economists by Bloomberg News.[33] Sales of existing homes in the U.S. probably fell to an annual rate of 4.92 million in March, from 5.03 million the prior month, according to a Bloomberg News survey.[47] And, while new orders for long-lasting U.S. manufactured goods also fell in March, a key gauge of corporate investment appetite in the durable goods report exceede expectations. For details, see. In Europe, the headline Ifo index, a measure of German business morale, fell to a much lower-than-expected 102.4 in April, its lowest since January 2006.[29] German business confidence posted a steeper-than-expected decline in April, a closely watched survey showed on Thursday, pointing to new pessimism in Europe's biggest economy.[11] Economists had been expecting claims would rise by 3,000. In addition to the jobs data, the Ifo institute's closely watched monthly survey showed business confidence in Germany, Europe's biggest economy, dropping to its lowest level for more than two years in April after three consecutive increases.[16]

Berlin - Resurgent inflation and global economic uncertainty have combined to undercut business confidence across Europe with two key sentiment surveys falling sharply on Thursday.[22]

"April's drop in the German Ifo business climate index suggests that the economy's recent resilience to the global slowdown and the strength of the euro is beginning to wane," said analyst Jennifer McKeown at Capital Economics.[11] Demand for the euro slid after a reading on German business sentiment showed the biggest monthly fall since September 2001, denting confidence in the euro zone economy.[29]

Despite persistent worries about the U.S. economy, the dollar benefited as the euro dropped back.[15] FRANKFURT, Germany -- The dollar rose against the euro Thursday following a report that indicated U.S. jobless claims fell sharply.[16] The euro fell against the dollar on speculation credit market turmoil is spreading through Germany. The association bought Duesseldorfer Hypo, which has a balance sheet total of 26.7 billion euros ($42.5 billion), from its owner family Schuppli and is now looking for a buyer, the FT Deutschland said, citing an association statement.[47] April 23 (Bloomberg) -- The euro fell against the dollar and was little changed versus the yen.[50]

The euro's appreciation to a record against the dollar may help to damp price pressures by curbing exports and contributing to an economic slowdown.[20] European bond prices declined after the policy-makers' comments, widening the yield advantage of German bunds over U.S. Treasuries with similar maturities, further boosting demand for the euro.[7] A decline in European bonds after Noyer's comments widened the yield advantage of two-year German government debt over Treasuries with similar maturities by 0.09 percentage point to 1.71 percentage points.[27]

The Fed has lowered the main lending target rate 3 percentage points since September to 2.25 percent. The ECB has kept its benchmark unchanged at 4 percent since June. [47] The implied yield on the three-month Euribor futures contract for December fell 4 basis points to 4.56 percent as traders reduced bets on the likelihood of an ECB rate increase.[33] Finance ministers at the meeting in Washington expressed concern that exchange rates were fluctuating sharply. The implied yield of the three-month Euribor future for December has risen 0.61 percentage point this month to 4.60% as traders priced in the likelihood of an ECB rate increase.[6]

The contracts settle to the three-month inter-bank offered rate for the euro, which averaged 18 basis points more than the ECB's benchmark rate from 1999 until August.[33] "The hawkish camp has been suggesting that there could be a change of stance by raising doubts about the appropriateness of current rates,'' said Laurent Bilke, an economist at Lehman Brothers Holdings Inc. in London. While he still expects the ECB to lower its benchmark rate to 3.75 percent in September, he said "the risk of a longer period of unchanged rates is increasing.''[5]

'After today's minutes we have revised down the probability of a May rate cut to 20 percent (from previously 40 percent),' said Lavinia Santovetti, analyst at Lehman Brothers (nyse: LEH - news - people ).[43] The bank aims to keep the rate of consumer-price increases just below 2 percent.[25] Purchases of previously owned homes dropped 2 percent to an annual rate of 4.93 million, from 5.03 million in February, the National Association of Realtors said Tuesday in Washington.[38]

Asian currencies including the Chinese yuan are about 25 percent undervalued against the euro, and investors should look for opportunities to bet on the region's foreign-exchange rates to rise, said Goldman in a note to clients yesterday.[21] By 3:55 a.m. EDT the euro was down 0.1 percent at $1.5970, off the record peak of $1.6018 set the previous session.[24] The euro, which reached a record $1.60 on April 22, dropped 2.5 cents today and traded at $1.5648 at 5:30 p.m. in Frankfurt.[20] The euro briefly topped the $1.60 level in late afternoon trading in Europe, a first.[41] The euro's decline below the so-called support level around $1.58, which represents the 21-day moving average, may spark more selling, according to Nicole Elliot, a senior technical analyst at Mizuho Corporate Bank.[33] The euro declined to $1.5846 euro from $1.5912. It touched $1.5983 on April 17, the highest level since its 1999 debut.[47]

A report from BusinessEurope, which says it represents more than 20 million small, medium and large companies, said damage to export markets had been limited so far but "expecting emerging countries to compensate for weaker U.S. growth and consumption is hardly feasible." Household spending in fast-growing economies such as Brazil, Russia, India and China which are all buying far more European goods represent only a third of the American consumer market, it said. Euro exports to the U.S. were flat in January, worth no more than they were a year ago. [1] "The U.S. data is pretty clearly dollar positive and we're coming off some weaker European data today already," said Brian Dolan, head of research at consultancy Forex.com, in Bedminster, New Jersey.[29] Japan's benchmark Nikkei share average fell 1.1 percent.N225. Jitters about the health of European financial institutions followed fresh anxiety on the state of their rivals in the U.S. Continued.[51] 'The decline of the Ifo index should wake up all decoupling believers who over the last months steadily advocated that the German economy had been able to shrug off the financial crisis and the U.S. slowdown,' said Carsten Brzeski at ING (nyse: IND - news - people ).[12] Economists polled by Thomson Financial News had forecast the index would fall to 104.3 after unexpectedly rising to 104.8 in March, weighed down by an economic slowdown and the strong euro.[11] The euro-zone composite purchasing managers index rose to 51.9 in April, according to a report released on Wednesday. It helped to send the euro down as economists cautioned that components of the data still showed signs that a moderate economic downturn remained in place.[26]

April 22 (Bloomberg) -- The yen rose for the first time in seven days against the euro as a decline in Asian and European stocks prompted investors to pare holdings of higher-yielding assets funded in Japan.[47] Earlier, the yen rose against the euro after Asian stocks declined on concern bank's credit-linked losses will widen.[8]

Increased risk aversion is being reflected in money market rates, which have risen again on a spate of losses at major U.S. banks. [8] Bank of America, the second- largest U.S. bank, yesterday reported a 77 percent drop in first-quarter profit.[47]

"The ECB is certainly not easing in the near term," said Adam Boyton, a senior foreign-exchange strategist in New York at Deutsche Bank.[38] The dollar edged up to 1.0084 Canadian dollars in late New York trading, from 1.0072 Canadian dollars Monday.[4] In other late New York trading, the dollar bought 1.0028 Swiss francs, down from 1.0072 francs.[4]

Dollar gains may be limited on speculation Commerce Department reports will show sales of new homes slid to a 13-year low in March and growth in durable goods orders stalled. [33] 'The limitation to pre-existing MBS means it will have little impact on lending growth going forward beyond freeing new funding to finance new lending, but banks are still struggling to source new period wholesale funding,' said Pearson.[3]

International Monetary Fund Europe Director Michael Deppler said yesterday the ECB may need to lower rates within six months to bolster growth.[42] As soon as commodity prices start to drop, the ECB needs to lower rates, "not into 2009, but in the next three, six months.'' IMF Europe Director Michael Deppler said in a Bloomberg Television interview this week.[25]

Coming around the 10th anniversary of the creation of the European common currency, the renewed tension is a reminder that the fundamental dispute over the objective of monetary policy in Europe - which raged before the creation of the ECB - remains unresolved.[41] "The ECB and its members seem to be really focused on fighting inflation, and that has been giving the European currency a boost after the recent drop."[39]

"The dollar started Monday on a weak note, while the euro got a lift from ECB hawkish comments," said Matthew Strauss, a currency strategist at RBC Capital Markets in Toronto.[10] The 15-nation currency declined by the most in almost a week against the U.S. dollar as the difference in yields between German two-year notes and similar-maturity Treasuries narrowed to the least in a month.[33] The Australian dollar declined to 94.57 U.S. cents, from 94.92 cents yesterday, when it reached a 24-year high of 95.41 cents, as prices of the commodities the nation exports declined.[33] Rising inflation stemming from soaring food and energy prices came firmly into view as U.S. crude oil hit a historic high of $119.90 CLc1.[7] 'Overall, risks seem to be on the upside,' it said. The report said in 2008, total base effects from both energy and non-energy prices are expected to make substantial downward contributions to inflation developments 'of around 1.1 percentage point cumulatively in the 12 months to December 2008'. It said the impact will generally be concentrated towards the end of the year as the significant increases in energy and food prices recorded in the second-half of 2007 will drop out of the annual comparison 12 months later. 'However, the extent to which these negative base effects will also lead to lower HICP inflation hinges crucially on the absence of further shocks to oil and food prices and on the moderate evolution of the other HICP components, which in particular requires the absence of second-round effects,' it said.[52] Earlier in the day, Christian Noyer, France's central banker, told French radio network RTL, "Our big problem is to ensure that inflation returns below 2% next year.[32]

Weber is also president of the Bundesbank. Weber said the persistently high prices in energy and food are a 'cause for concern' as continuing increases in their prices 'increasingly loosen the medium and long-term inflation expectations from their anchor'. These high prices in energy and food could also reach levels that would be above the'stability threshold' of the ECB, he added.[19] The increased spread boosted the appeal of euro-denominated assets. The Dallas Fed's Fisher said on April 21 in a Fox Business Network interview aired yesterday that inflation from rising food and energy prices has been so persistent that it's starting to affect consumers' expectations for future prices. "I'm concerned that we might be on a path of higher inflation than we would otherwise have had,'' he said.[27]

"The euro and energy prices are the two primary factors contributing to the breakdown in the Ifo,'' said Michael Malpede, a senior currency analyst in Chicago at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts.[21]

In the clearest sign yet that the euros sharp rise against the dollar is weighing ever more heavily on some exporters, Airbus said Tuesday it would raise the price of its aircraft, which are sold in shriveling dollars.[41] The euro versus the dollar has had a correlation of 0.96 with oil over the past year, according to data compiled by Bloomberg.[6] The euro versus the dollar has had a correlation of 0.96 with oil over the past 12 months, according to data compiled by Bloomberg. A reading of 1 would mean they move in lockstep.[33]

The strong euro is helping soothe the galloping cost of oil and other commodities, which are priced in dollars.[1] American tourists in Spain find their spending costs rising by the hour as the euro hovers near a record high.[1] The euro hovered in reach of a record high versus sterling after a slide in British mortgage approvals to a record low in March underlined serious weakness in the housing market. It last traded at 80.23 pence.[30] The euro was trading at 80.08 pence, near the record high of 80.98p hit last week.[35]

While Europe's economy has proved relatively resilient so far, there are signs the credit squeeze will slow growth. Investor confidence in Germany, the largest of the 15 nations sharing the euro, unexpectedly plunged this month. [5] "Manufacturing has dropped quite a bit and that has been the driver of growth in Germany. the euro is off a touch on it," said David Pais, currency strategist at Citigroup.[23] 'With economic growth expected to be broadly in line with potential, the near stabilisation of the euro area average deficit reflects a slowdown or even a reversal of consolidation efforts in some countries and a reduction of surpluses in others,' it said.[52]

The average government debt ratio in the euro area is expected to decline less rapidly in 2008, by around 1.5 percentage points, to 65.1 percent of GDP, it said. [52] Commenting on the fiscal consolidation efforts in euro zone countries, the report said fiscal plans indicate that the decline in the average government deficit in the region -- observed since 2004 -- will come to a halt, with the deficit marginally increasing to 0.9 percent of GDP.[52]

Over 80 percent of German exports are priced in euros, BGA President Anton Boerner said in an e-mailed statement.[34] 'With regard to foreign business, however, the survey participants remain optimistic, despite the strong euro,' said Sinn releasing the German Ifo business survey, while the Paris-based statistics office said French export order books remained strong.[22] The French and German business surveys released Thursday also indicated that the strong euro had so far not emerged as a critical issue for industry.[22]

The Aussie, as the country's currency is known, was at 97.89 yen from 98.11. The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, fell to 102.4, from 104.8 in March.[33] Orders for products meant to last at least three years rose 0.1 percent in March, according to a separate survey.[33] The rand rose more than 2 percent versus the South Korean won and 1.9 percent against the Canadian dollar.[27] The rate on the Euribor futures contract maturing in December rose to 4.61 percent today, up from 3.31 percent on Feb. 11.[5] Euro-region industrial orders rose 0.6 percent in February from the previous month, boosted by aircraft and other transport equipment, the European Union's statistics office said today.[34] Consumer prices have been rising in Slovakia and across the European Union, driven by higher fuel and food prices, and unemployment remains stubbornly high--11 percent in 2007, compared to the EU average of 7 percent.[28]

A decision on whether Slovakia is fit to join the currency union will be made by the European Commission and ECB in May.[28]

In order to join the currency union countries must meet rigid financial criteria--including limits on public debt and inflation.[28] LONDON (Thomson Financial) - European government bonds were lower, pressured by ongoing concerns over inflation and by gains on equity markets.[40]

The Financial Times Deutschland reported that the Federal Association of German Banks took over Duesseldorfer Hypothekenbank AG, a German government and mortgage lender, indicating the credit crisis is spreading to Europe. [8] The euro rose after falling on news Germany's BdB banking association had taken control of Duesseldorfer Hypothekenbank (DUOGg.F: Quote, Profile, Research ) and planned to sell it after the property lender ran into problems linked to the current financial crisis.[39] Royal Bank of Scotland Group Plc the U.K.' s second-biggest lender, said today it will sell 12 billion pounds ($23.7 billion) of new shares to investors to boost capital depleted by 5.9 billion pounds of writedowns.[47]

The 3-way split, the first since May 2006, had been anticipated by a number of Bank watchers though the market consensus was that eight or nine of the Monetary Policy Committee would fall in line behind governor Mervyn King's preference for a quarter point cut.[43] "Further rate cuts may not be the most effective way to handle a further deterioration in the economy and the worsening mortgage crisis."[37]

The ECB's benchmark refinancing rate has remained on hold at 4 per cent since June last year.[22] In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher rates, earning the spread.[47]

In London on Thursday, the euro changed hands at 1.5749 dollars against 1.5882 late on Wednesday, at 163.51 yen (164.42), 0.7967 pounds (0.8022) and 1.6132 Swiss francs (1.6139). [11] Against the Japanese currency on Thursday, the dollar rose to 103.80 yen from 103.51.[11] "The recent Libor-led spike is indicative of risk- aversion,'' Naomi Fink, a senior currency analyst in Tokyo at Bank of Tokyo Mitsubishi UFJ Ltd., Japan's second-largest by assets, wrote in a research note yesterday. "The yen carry bubble has burst, and those scrambling desperately to find liquidity in the yen market may be disappointed.''[47]

Among the Central and Eastern European states, only Slovenia has met the criteria and switched to the euro in 2007. [28] The euro rose as high as $1.6018, more than a penny above the $1.5916 it bought late Monday.[4] "Concern that problems may spread through the German banking sector could weigh on the euro.'' The euro may fall to $1.58 today, he forecast.[47]

"The U.S. data is still very weak, and the dollar should continue falling," said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group. [38]

SOURCES

1. European Union business group says strong euro is alarming - International Herald Tribune
2. ECB's Mersch says ECB may raise euro zone inflation forecasts in June UPDATE - Forbes.com
3. Forex - Euro remains well bid as ECB comments bolster rate expectations
4. The Associated Press: Euro breaks through $1.60 as dollar slumps to record low
5. Bloomberg.com: Economy
6. Euro dips vs US dollar on growth warning | theage.com.au
7. FOREX-Euro rallies through $1.60 as ECB eyed | Currencies | Reuters
8. Bloomberg.com: Japan
9. ECB Gives Euro A Helping Hand - Forbes.com
10. FOREX-US dollar down on Bank of America results; euro up | Currencies | Reuters
11. AFP: Euro slides against dollar on gloomy German survey
12. European government bonds rise as Germany's Ifo confidence survey falls - Forbes.com
13. Free Preview - WSJ.com
14. Dollar gains after record-breaking fall against the euro - International Herald Tribune
15. Dollar gains after record-breaking fall against the euro | Chron.com - Houston Chronicle
16. Dollar gains on euro following drop in US jobless claims | Chron.com - Houston Chronicle
17. Trichet says ECB is concerned about impact of'sharp' currency fluctuations - Forbes.com
18. ECB's Stark says current monetary policy contributes to price stability - Forbes.com
19. Weber says ECB to decide whether current rates will help control inflation - Forbes.com
20. Bloomberg.com: Worldwide
21. Bloomberg.com: Worldwide
22. ANALYSIS: Business confidence slumps across Europe - Business
23. FOREX-Euro backs off record high on weak PMI, ECB talk | Markets | Markets News | Reuters
24. Euro backs off record high on policymaker talk | Markets | Hot Stocks | Reuters
25. Bloomberg.com: Europe
26. Dollar recovers against major currencies_English_Xinhua
27. Bloomberg.com: Worldwide
28. Euro Skeptics in Slovakia
29. FOREX-Dollar rises broadly after U.S. economic data | Currencies | Reuters
30. Euro slips from record on weak data, ECB talk | Currencies | Reuters
31. FOREX-Euro backs off record high on policymaker talk | Currencies | Reuters
32. Free Preview - WSJ.com
33. Bloomberg.com: Germany
34. Bloomberg.com: Worldwide
35. BBC NEWS | Business | Euro scales $1.60 for first time
36. Free Preview - WSJ.com
37. AFP: Euro retreats in Asian trade
38. Euro breaches $1.60 as ECB warns of possible rate rise - International Herald Tribune
39. FOREX-Euro trades near record high on rate view | Currencies | Reuters
40. European government bonds lower on inflation concerns - Forbes.com
41. Euro rises above $1.60; Airbus raises its prices - International Herald Tribune
42. Bloomberg.com: Economy
43. European government bonds recover after Noyer backtracks - Forbes.com
44. Bloomberg.com: Germany
45. ECB's Stark says monetary analysis proven to be 'bulwark' for monetary policy - Forbes.com
46. FOREX-Surging oil, rate view lifts euro near record high | Currencies | Reuters
47. Bloomberg.com: Japan
48. Free Preview - WSJ.com
49. The Associated Press: Euro lower against US dollar
50. Bloomberg.com: Europe
51. FOREX-Euro dips as banking jitters surface in Germany | Currencies | Reuters
52. ECB says outlook for food prices remains highly uncertain - Forbes.com
53. Trichet says banks need to enhance risk management systems - Forbes.com

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