ECB's Trichet `Concerned' About Euro's Appreciation

(Bloomberg) -- European Central Bank President Jean- Claude Trichet said he's ``concerned'' about the euro's appreciation, intensifying his rhetoric after the currency climbed to a record against the dollar.

``We're concerned about excessive exchange-rate moves in the present circumstances,'' Trichet told reporters in Basel, Switzerland today. It's the first time Trichet has specifically expressed worry about the currency since November, when he opposed ``brutal'' moves.

The euro fell as much as 0.3 percent after the comments before rebounding, as investors decided Trichet's ability to weaken the currency is limited. The strongest European inflation in 14 years is preventing the ECB from cutting interest rates while the Federal Reserve is slashing borrowing costs to stave off recession in the world's largest economy.

``Trichet is making a distinct change in emphasis,'' said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. Still, ``while the ECB is on hold and the Fed is cutting rates, rate differentials will continue to move in support for the euro.''

The euro rose to a record $1.5459 on March 7, a day after Trichet declined to sound a warning following the ECB's decision to leave its key rate unchanged at 4 percent.

`Strong Dollar'

On that occasion Trichet noted only that U.S. authorities support a ``strong dollar,'' an observation he repeated today with ``extreme attention.'' U.S. Treasury Secretary Henry Paulson said March 7 that a strong dollar is ``in our nation's interest.''

Unlike the Fed, which has cut its benchmark interest rate 2.25 percentage points since September, Trichet's ECB has refused to reduce rates with inflation in breach of its 2 percent goal.

By signaling an unwillingness to take action, the ECB is indicating ``tacit support for its record-high euro as it uses currency policy to contain inflationary pressures rather than monetary policy,'' said Ashraf Laidi, a currency analyst at CMC Markets in New York.

ECB Executive Board member Juergen Stark told a conference in Paris on March 7 that the ECB does not target a euro-dollar exchange rate. Currency developments ``should be taken into account by monetary policy only to the extent that they have a medium-term influence'' on inflation, he said.

 

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