Currencies

Thursday May 8, 04:16 PM
Forex - Euro strengthens after Trichet fails to soften hawkish rhetoric

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LONDON (Thomson Financial) - The euro strengthened after the European Central Bank disappointed markets by providing no hints that it might ease interest rates any time soon in the single currency zone.

At a press conference, ECB president

Jean-Claude Trichet said the central bank's decision on Thursday to keep interest rates unchanged at 4.00 percent was unanimous, and that its view on the inflation outlook and price stability has not changed in the past month, despite a slight decline in euro zone HICP inflation in April and some weakness in recent economic indicators.

'Trichet failed to dampened his hawkish stance despite softening Eurozone growth and inflation data,' said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.

'The ECB statement and Trichet's press conference corresponded to a rebound in the euro as players were disappointed that the ECB did not clearly acknowledge the improvement in inflation data and a willingness to cut rates,' said Woolfolk.

Trichet's hawkish comments dampened any prospects for the dollar to sustain Wednesday's gains, despite some robust data from the U.S.

In the week ending May, the number of individuals filing new claims for unemployment insurance fell 18,000 to 365,000, below the 370,000 claims economists polled by Thomson (Paris: FR0000184533 - news) 's IFR Markets were expecting.

Meanwhile, U.S. wholesale inventories data unexpectedly fell for the first time in more than a year in March, while wholesale sales posted a stronger-than-expected rise of 1.6 percent.

Elsewhere on currency markets, the pound weakened despite the Bank of England keeping its benchmark Bank Rate on hold at 5.00 percent, as market players continued to price in the probability that the Bank of England will deliver a rate cut next month instead.

There was no statement accompanying the decision, so attention will turn to the central bank's quarterly Inflation Report on Wednesday for any insights into their economic outlook which might support market view that interest rates will come down in June.

'We expect the inflation and GDP projections to strike a more dovish tone compared with the February Report as the BoE takes on board the dismal news on activity, most recently the significant declines in the PMIs for April,' said Peter Newland, economist at Lehman Brothers (NYSE: LEH - news) .

London 1458 GMT London 1157 GMT

U.S. dollar

yen 103.48 down from 104.16

Swiss franc 1.0485 down from 1.0546

Euro

U.S. dollar 1.5424 up from 1.5366

pound 0.7882 up from 0.7853

yen 159.65 down from 159.99

Swiss franc 1.6177 down from 1.6206

Pound

U.S. dollar 1.9568 unchanged 1.9568

yen 203.53 down from 203.69