Euro hits one-week high as ECB holds rates
By Steve Johnson in London
Published: April 1 2004 12:04 | Last Updated: April 1 2004 17:35
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The euro chalked up a one-week high against the dollar on Thursday as the European Central Bank spurned one opportunity to cut interest rates and gave no indication that it ever intends to do so.
The ECB's decision to hold rates at 2 per cent for a tenth straight month was widely expected, but doves at least hoped for a few crumbs of comfort at the ensuing press conference.
Instead a hawkish Jean-Claude Trichet, president of the ECB, painted a picture of rising consumption, cautiously optimistic growth and firming inflation.
The ECB "left the door open for a cut in the coming months, rather than clearly signalling a move in May," said Sean Callow currency strategist at IdeaGlobal.
June is now increasingly being pencilled in as the earliest date for any easing. "A rate cut remains a possibility for May, but clearly it will take a further dip in confidence, activity or inflation," said Daragh Maher at ING. The euro was at $1.2325 by mid-session in New York, from $1.2256 prior to the release of bullish eurozone manufacturing data, which strengthened the hand of ECB hawks.
The purchasing managers' index (PMI) measure of eurozone manufacturing rose to 53.3 in March, its highest level since December 2000 and ahead of consensus forecasts. Crucially, higher export orders supported the view that the euro is not at problematic levels.
However the greenback recovered from intraday lows when the US ISM manufacturing index eclipsed expectations, with a bullish employment component raising spirits ahead of key non-farm payrolls data on Friday.
On a day of generally positive economic data, sterling still managed to rise 1.2 cents to $1.8542 to the dollar, a one-month high, as an upbeat UK March CIPS manufacturing survey pointed to rising inflationary pressures. "This places a UK rate hike on the horizon for either next week or next month. We favour next week," said Lena Komileva, global economist at broker Prebon Marshall Yamane.
Not to be outdone, Japan produced a punchy Tankan index of business sentiment, with the large manufacturers component at its highest level since June 1997. The yen edged up to Y103.80 against the dollar, although movement was damped by nervousness as to if, or when, the Bank of Japan will return to the fray.
Elsewhere Sweden's Riksbank cut base rates by 50 basis points to 2 per cent, the lowest level for a century. But with the reduction largely priced in, the Swedish krona actually strengthened to SKr9.2325 against the euro.
"This could well be the end of the [easing] cycle now and the market has been able to focus on the valuation of the krona, which is probably undervalued at these levels," said Paul Lambert, global head of currencies at Deutsche Asset Management. |
