The euro rose the most in two weeks against the dollar and gained
versus the yen and the British pound after European Central Bank
President Jean-Claude Trichet said an interest-rate increase in July is
``possible.''
The rally snapped three days of declines against the U.S. currency as
Trichet said policy makers are in a state of ``heightened alertness''
over inflation. The yen dropped to a three-month low versus the dollar
and fell the most against the euro since March as an advance in stocks
encouraged investors to buy higher-yielding assets funded in Japan.
``Trichet's comments are more hawkish than expected,'' said Marcus
Hettinger, a currency strategist in Zurich at Credit Suisse Group,
Switzerland's second-biggest bank. ``We don't expect the Fed to hike
anytime soon, so there's still a substantial interest-rate advantage
for the euro.''
The ECB kept its main refinancing rate at six-year high of 4 percent,
where it has been since last June. The Federal Reserve has cut its
target seven times since September, to 2 percent, to stave off a
recession.
The pound fell for a second day against the euro after the Bank of England kept its key interest rate at 5 percent today.
Futures on the Chicago Board of Trade showed a 69 percent chance the
Fed will raise the 2 percent target rate for overnight lending between
banks by at least a quarter-percentage point by December, compared with
55 percent odds a month ago.