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Euro gets double boost
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July 15, 1999: 10:49 a.m. ET
ECB governor's comments, U.S. inflation data lift slumping currency
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LONDON (CNNfn) - The struggling euro got a double boost Thursday as the market jumped on supportive remarks by the governor of the European Central Bank and another set of benign U.S. inflation data.
The euro surged in early afternoon trading in Europe to hit a session high of $1.0246, after it spent much of the morning trading around the $1.0220 mark.
The market reaction came on the back of comments from Wim Duisenberg, president of the ECB, who announced that short-term interest rates for the 11 euro-zone member states would remain unchanged at 2.5 percent. The decision to keep the rates unchanged was widely anticipated.
Traders reacted to hints from Duisenberg that the ECB may adopt a tightening stance in the future if inflationary pressures begin to mount. "A reassessment may be appropriate if money and credit growth increase further," Duisenberg said.
"The market will interpret [those comments] that the bank has gone towards a tightening bias," Claudio Piron, treasury economist at Standard Chartered, told CNNfn.com.
But Piron said that traders really piled into the euro after the release of the U.S. consumer price index for June, which was flat for the second month running. "The U.S. CPI data had more effect on the euro than Duisenberg's remarks," Piron said.
The CPI figures reassured currency markets that inflation in the United States remains under control, which makes a future interest rate cut less likely. The report follows by a day data showing that U.S. wholesale prices turned slightly lower in June.
Any sign of weakness in the U.S. economy would hit the euro because it is the only major export market for European goods that is buoyant, so the euro would have weaken to attempt to accommodate any drop off in demand.
Duisenberg also injected a note of optimism on the outlook for the euro-zone economies, as he predicted an upturn in the second half of the year, in line with economists' expectations. "While the signs of recovery are still modest and are not yet reflected in labor market developments, recent data appear to confirm the outlook for a continued improvement in the course of this year," he said.
But he also warned that further structural reforms were needed among the 11 euro-zone members make "a decisive contribution to bolstering confidence in the euro area's growth potential."
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European Central Bank
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