Barefoot Investor: Euro Slides After ECB Inflation

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.

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 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.”

The euro fell 0.2 percent to 116.26 yen as of 2:17 p.m. in London, and declined 0.5 percent to $1.4509. It reached $1.4697 on June 7, the strongest level since May 5.

Euribor futures rose, pushing the implied yield on the March 2012 contract down seven basis points to 1.96 percent, as traders reduced bets policy makers will boost rates.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, advanced 0.4 percent to 74.186. The pound traded at $1.6368, from $1.6404 yesterday. Sterling was at 88.60 pence per euro, from 88.90 yesterday, when it reached 89.76, the weakest since May 5. (BLOOMBERG)


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