Trichet opposes ‘disorderly’ currency moves as euro climbs
European Central Bank President Jean- Claude Trichet said he opposes "disorderly" currency moves even as his reluctance to consider easier monetary policy helped push the euro to a nine-month high against the dollar.
“More than ever, exchange rates should reflect economic fundamentals,” Trichet told reporters in Frankfurt today after the ECB today left its benchmark interest rate at a record low of 1pc.
“Excess volatility and disorderly moves have adverse implications for economic and financial stability.”
The euro appreciated to $1.40 for the first time since February, extending its gain in the past month to 10pc, as Trichet signaled little willingness to do more to support growth.
By contrast, the Bank of Japan this week dropped its benchmark to “virtually zero” and expanded its asset-purchase program, while the Federal Reserve has indicated it may do more to stimulate growth.
Trichet, who also said he supports a “strong dollar,” will today fly to Washington to attend a G7 summit that’s likely to be dominated by discussions about exchange rates and international trade. Brazil’s Finance Minister Guido Mantega said September 27 that there’s already a worldwide “currency war.”
Chinese officials this week stiffened their opposition to allowing the yuan to appreciate against other currencies after meeting Trichet and other policy makers in Brussels.
The dollar today dropped to a 15-year low against the yen and to a record against its Australian counterpart.
Trichet is trying to shore up Europe’s economic recovery and help banks hurt by this year’s debt crisis without making financial institutions dependant on ECB emergency measures.
Near-record borrowing costs for nations across the euro region’s periphery are making his job harder.
Irish 10-year bond yields soared to a record versus German bunds on September 29 on concern the bailouts of Anglo Irish Bank and AIB would overwhelm government finances.
The Portuguese- German 10-year yield spread, which hit a record on September 28, was at 400 basis points today, up from 88 basis points on March 10.
“Concerns remain relating to the emergence of renewed tensions in financial markets,” said Trichet, adding that risks to the economic outlook are “tilted to the downside.”
Trichet also said that the recent increase in money-market rates don’t reflect any intentional tightening of policy by the ECB.
Borrowing costs rose after banks last week asked the ECB for less money than some analysts had expected in an offering of three-month funds.
“What has been observed was that banks judged that they needed less liquidity than before,” Trichet said.
“It wasn’t something we engineered ourselves. It was the interaction of banks in an environment of full allotment. There’s absolutely no monetary policy signal at all.”