Trichet leaves ECB rate unchanged

Rodrigo Davies, Bloomberg

There is currently “no significant evidence of underlying domestic inflationary pressure building up in the euro area”, Trichet said yesterday after the bank left the rate unchanged at 2%.

The Federal Reserve raised its target rate a quarter-point to 2.5% on Tuesday. Against the euro, the dollar strengthened to $1.2956 at 9:20am in New York, from $1.3027 late on Wednesday after the ECB announcement.

“Trichet has signalled pretty clearly they’re not going to move on interest rates soon,” said Shahab Jalinoos, a currency strategist at ABN Amro Holding in London.

The euro may weaken to $1.2930, he said.

The euro fell 3.8% against the dollar in January, in part on speculation the interest-rate gap between the US and the in part on speculation the interest-rate gap between the US and the eurozone will widen. The Fed’s benchmark rate now exceeds the ECB’s by a half point.

Neil Jones at BNP Paribas in London said: “We expect the Fed to hike rates more than any other large economy this year.”

The US currency may extend yesterday’s gains on expectations a US government report tomorrow will show that US employers created the most jobs in three months in January.