Euro Rises to Near Record Versus Dollar on ECB Prices Concern

Euro Rises to Near Record Versus Dollar on ECB Prices Concern

By Lukanyo Mnyanda

April 21 (Bloomberg) -- The euro rose to within a cent of a record high against the dollar as European Central Bank officials reiterated their concern inflation is accelerating, making it more likely the ECB will keep interest rates at a six-year high.

Europe's single currency rose for the first time in three days after policy maker Klaus Liebscher said today record oil prices are starting to push up wages. The dollar also dropped as Bank of America Corp., the nation's second-largest, reported a 77 percent drop in first-quarter profit. The U.K. pound fell as the central bank unveiled a plan to swap government bonds for mortgage-backed securities to help revive lending between banks.

``ECB talk is still very much on the hawkish side and that's likely to support the euro,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, France's largest bank. ``There's still a possibility we could see a spike up to $1.60.''

The euro traded as high as $1.5921 and was at $1.5905 as of 8 a.m. in New York, from $1.5817 on April 18. The European common currency rose to $1.5983 on April 17, the highest level since its introduction in 1999. It advanced to 164.27 yen, its sixth consecutive day of gains, from 163.96. The dollar fell to 103.29 yen, from 103.67.

The pound dropped to $1.9856, from $1.9979 on April 18, as the details of the Bank of England's plan to help lower credit costs and revive interbank lending tallied with those in press reports. The bank said it will swap 50 billion pounds ($100 billion) of government bonds for mortgage-backed securities. Governor Mervyn King said the liquidity plan may exceed today's offer.

The plan will ``unfreeze the situation we've got at the moment,'' Chancellor of the Exchequer Alistair Darling told the British Broadcasting Corp. before the announcement, without specifying the size of the swap.

Aussie Dollar

The Australian dollar, also known as the Aussie, climbed as a government report showed producer prices rose by a record in the first quarter. The price increase backed the central bank's case for keeping interest rates at a 12-year high of 7.25 percent, compared with 2.25 percent in the U.S. Futures on the Chicago Board of Trade show 100 percent odds of the Federal Reserve cutting its target rate 25 basis points on April 30.

The Aussie rose to 94.22 U.S. cents, from 93.48 on April 18. It also traded at 97.32 yen, from 96.89.

Charlotte, North Carolina-based Bank of America said profit fell as job losses and falling house prices caused more people to miss payments on credit cards and home loans.

U.S. policy makers have cut their main interest 3 percentage points since September to prevent the economy from slipping into a recession amid widening financial company losses, while the ECB has kept borrowing costs unchanged since June.

Mounting inflation pressure in the euro area may even lead policy makers to consider a rate increase, the Wall Street Journal quoted ECB policy maker Erkki Liikanen as saying. His colleague, Axel Weber, who last week said policy makers will assess whether the benchmark rate of 4 percent is high enough to contain ``intolerably'' fast inflation, speaks in Munich today.

The euro zone's inflation rate rose to 3.6 percent in March, the highest in almost 16 years, a government report said on April 16.

``It's not going to be long before the euro breaks $1.60,'' said Derek Halpenny, London-based head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. ``It's clear the Fed has got more to do on the downside.''

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net