Trichet signals alarm at euro’s rise
By Ralph Atkins in Frankfurt
March 10 2008 20:28
Jean-Claude Trichet, European Central Bank president, has sounded the alarm over the relentless rise of the euro – signalling policymakers’ heightened concern about the economic damage threatened by the currency’s recent surge.
“In present circumstances, we are concerned about excessive exchange rate moves,” he said in prepared comments after a meeting of the world’s central bank governors in Basel, Switzerland. “Excessive volatility and disorderly movements…are undesirable for economic growth.”
The comments mark a change of tack. The ECB took a hard-line on interest rates at last week’s policy-setting meeting, when the bank made clear that combating eurozone inflation – at a 14-year high of 3.2 per cent – was its priority. Mr Trichet had failed to express concern about the euro at that point, sending the currency above $1.54 for the first time.
Monday’s intervention, which pushed down the euro, appeared to be aimed at calming market movements. Full-blown central bank intervention – which would almost certainly require US support to succeed – still seems unlikely.
The ECB’s anxiety has been heightened by fears that US authorities have unintentionally exacerbated the dollar’s weakness. Comments by Ben Bernanke, US Federal Reserve chairman, on possible US bank failures have raised eyebrows in Europe, for instance.
Mr Trichet said in Basel that he “noted with extreme attention” the US authorities’ interest in a strong dollar. But Julian Callow, of Barclays Capital, said the ECB’s frustration was “born out of concern that the US is condoning dollar depreciation”.
While eurozone official borrowing costs have remained unchanged since last June, the US Federal Reserve has slashed interest rates – contributing to the euro’s rise and increasing fears about global inflation.
Mr Trichet’s decision to wait until Monday before commenting on the euro suggested he had been anxious last week not to confuse the central bank’s message on combating inflation.
Analysts said his attempt at verbal intervention – which brought the ECB’s position closer to those of eurozone finance ministers – would counter the main anti-inflation message. “It is pretty lame and inconsistent with the rest of his policy attitude,” said Marco Annunziata, at Unicredit, the Italian banking group.
It suggested that the ECB was more worried about eurozone economic growth than it had previously acknowledged, added Mr Annunziata.
Germany on Monday reported stronger than expected export growth in January while French and Italian industrial production in the same month also exceeded expectations.
By midday in New York, the euro had come off its session highs to trade 0.1 per cent lower against the dollar at $1.5333. |
