法意PHIGROUP

By Ron Harui and Yasuhiko Seki

March 9 (Bloomberg) -- The euro traded close to a one-week high against the dollar amid speculation the European Central Bank will slow the pace of interest-rate cuts, helping to keep the currency attractive.

Europe’s single currency may rise for a second day against the greenback after ECB Executive Board member Juergen Stark said reducing borrowing costs wouldn’t remedy the financial crisis and pushing rates too low may backfire. The Swiss franc fell against the dollar before a government report today that may show the nation’s unemployment rate rose to 3.4 percent in February, from 3.3 percent the previous month.

“Expectations for a further interest-rate cut by the ECB have eased for now following last week’s reduction and recent comments by the bank’s officials,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-largest lender. “This is triggering some buying back of the euro for now.”

The euro was at $1.2636 as of 6:38 a.m. in London, after touching $1.2727 earlier, from $1.2653 late in New York on March 6. It traded at 124.14 yen from 124.34 yen. The Japanese currency stood at 98.24 against the dollar from 98.25 last week.

The Swiss franc declined to 1.1615 against the dollar from 1.1577 in New York last week.

“The financial crisis can’t be solved with rate cuts,” Stark said in an interview to be published in Luxembourg’s Tageblatt newspaper today. “Too low a rate level can even be counter-productive.”

Lowest Limit

Stark speaks at 10 a.m. in Luxembourg today and fellow board members Axel Weber and John Hurley will give speeches tomorrow. A benchmark lending rate of 1 percent as the “lowest limit,” Weber said on Feb. 24.

Investors raised bets the ECB will keep its benchmark at 1.5 percent at its next meeting on April 2. The yield on the three-month Euribor three-month interest-rate futures due April climbed to 1.57 percent on March 6 from 1.56 percent on March 5.

The euro may strengthen to $1.29 by year-end, according to a Bloomberg News survey of 52 economists and analysts.

The yen earlier declined against the dollar after a government report showed Japan posted a current-account deficit in January for the first time in 13 years.

The Japanese currency weakened after the Ministry of Finance said the world’s second-biggest economy recorded a deficit of 172.8 billion yen ($1.76 billion), exceeding the median estimate for a 15.3 billion yen shortfall in a Bloomberg News survey of economists.

‘Lingering Concern’

“There is lingering concern about the trend of exports due to the continued global recession,” said Akio Yoshino, chief economist at Societe Generale Asset Management (Japan) Inc. in Tokyo. “Declines in exports mean less need for Japanese companies to repatriate sales generated outside Japan.”

The World Bank said yesterday the global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years. The bank’s assessment is more pessimistic than an International Monetary Fund report in January predicting 0.5 percent global growth this year.

Japan’s export-oriented economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since the 1974 oil crisis.

Losses in the yen may be limited after Eisuke Sakakibara, formerly Japan’s top currency official, said it may rise to a record 70 against the dollar this year, and officials shouldn’t intervene.

Mr. Yen

The Japanese currency is likely to swing in a wide range between 100 and 70 versus the greenback in 2009 as markets remain volatile due to the global financial turmoil, said Sakakibara, known as “Mr. Yen” from his 1997-1999 tenure at the Ministry of Finance. “While the yen will move wildly in this range, I do not see any need for the intervention and I also believe that the U.S. authorities would not permit it,” he said in an interview with Bloomberg.

Demand for the dollar may weaken on speculation the U.S. government will allow automakers to fail. President Barack Obama’s auto task force visits Detroit today amid Republican calls to let General Motors Corp. go bankrupt and waning public support for giving automakers the taxpayer loans they say they need to survive.

Bankruptcy

GM executives, who last year warned bankruptcy-based reorganization would have a catastrophic effect on customer confidence, are now more open to the idea of a structured bankruptcy, the Wall Street Journal reported on March 6, citing a person familiar with the company.

“A Chapter 11 filing by GM should trigger dollar-selling in an initial reaction,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp. “Negative developments in the U.S. financial sector may also weigh on sentiment toward the dollar.”

The Dollar Index, which the ICE uses to track the greenback’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 88.466. The index touched 89.624 last week, the highest level since April 2006.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net