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The euro fell, erasing earlier gains, after European Central Bank President Jean-Claude Trichet’s 2012 inflation forecast prompted traders to scale back bets for the pace of interest-rate increases.
The shared European currency slid against the dollar after climbing as much as 0.5 percent, even after Trichet said at a press conference in Frankfurt that “strong vigilance” is needed to contain inflation, which means policy makers may boost rates in July. The ECB revised its 2012 inflation and gross domestic product forecasts.
“The euro sold off as the inflation forecasts and the lowering of the bottom end of the GDP forecast may provide a headwind to further tightening,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “He has repeated what was basically already priced into the market.”
“We are not signaling any particular pace for the next decisions on our interest rates,” Trichet said. “It means that we are in a mode where there might be, in the next meeting, an increase of rates, but we are never pre-committed.”
The ECB said inflation next year will accelerate between 1.1 percent and 2.3 percent, compared with an earlier forecast of 1 percent to 2.4 percent. Policy makers see growth in 2012 of 0.6 percent to 2.8 percent, from a previous range of 0.8 percent to 2.8 percent.
The common currency also declined amid renewed concern that Greece may need to restructure its debt.
“You’ve got to view what has happened to the euro as a combination of Trichet’s comments and concerns over the Greek bailout,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “Trichet’s ‘strong vigilance’ was strongly baked in, so it was difficult to see a particularly positive reaction. Greek concerns are mounting as we’re yet to get a clarity of position as to what each of the parties thinks with regard to a restructuring.”
The Dollar Index rose today as the U.S. trade deficit unexpectedly shrank 6.7 percent to $43.7 billion in April, Commerce Department figures showed today.
New Zealand’s currency climbed to a record after the nation’s central bank said borrowing costs will need to rise in the next two years.
The Bank of England kept its benchmark rate unchanged at 0.5 percent at today’s meeting.
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