Euro Weakens After Trichet Says ECB Must Do Everything Possible

(Bloomberg) -- The euro fell to a one-month low against the dollar after European Central Bank President Jean- Claude Trichet said the central bank must do everything possible to boost confidence, signaling he may cut interest rates further.The Dollar Index rose for a fourth day before a U.S. report that may show consumer confidence in the world’s largest economy increased for a second month, adding to evidence its recession may be easing. South Korea’s won gained for a sixth week, its longest winning streak in 18 months, on optimism record-low borrowing costs and government stimulus plans will help encourage economic growth.

The euro dropped to $1.3104 as of 8:01 a.m. in London from $1.3186 in New York yesterday. It fell as low as $1.3068, the weakest since March 18, and is heading for a second weekly loss. The currency slid to 130.32 yen from 130.90 yen. The dollar was at 99.54 yen from 99.27 yen.The won gained 0.1 percent this week to 1,331.55 per dollar, according to data compiled by Bloomberg. It touched a three- month high of 1,298.05 on April 10, and has gained 16.4 percent since March 6.

‘Ambiguity’

Trichet also said in a speech in Tokyo today that any uncertainty about the direction of policy will postpone a recovery in the 16-nation region’s economy, damping speculation there is policy disagreement within the central bank.“Any ambiguity in our medium-term policy direction would delay the return of sustainable prosperity, because that would undermine confidence, which is the most precious ingredient in the present circumstances,” Trichet said. ECB council member Axel Weber said April 15 the bank shouldn’t cut rates below 1 percent, putting him at odds with policy makers who say borrowing costs must fall close to zero. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the 1.25 percent target rate below 1 percent and purchasing debt to pump money into the economy.

The ECB will lower its benchmark rate by a quarter- percentage point to 1 percent at its May 7 meeting, according to a Bloomberg News survey of economists.The yen fell against nine of the 10 most-traded Asian currencies outside Japan today on speculation a gain in stocks will encourage investors to buy more higher-yielding assets. The MSCI Asia-Pacific Index of regional shares rose 0.7 percent and the Nikkei 225 Stock Average climbed 1.7 percent.

‘Fear Gauge’
The VIX index, a measure of market volatility known as Wall Street’s “fear gauge,” fell as low as 34.88 yesterday, the least since Sept. 26, indicating traders are becoming more confident about stock market advances.

Dollar Index
The Dollar Index advanced before the release of the Reuters/University of Michigan preliminary index of consumer sentiment today. Sentiment increased to 58.5 in April from 57.3 in March, according to a Bloomberg survey of economists.Initial jobless claims in the U.S. fell by 53,000 to 610,000 in the week ended April 11, the fewest since January, the Labor Department said yesterday in Washington.

“Traditionally, the U.S. economy picked up ahead of the U.K., Asia and the euro zone,” Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a research note yesterday. “Accordingly, we would favor to be long the U.S. dollar and the British pound against the euro.” A long position is a bet that an asset will rise.The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, rose 0.5 percent to 85.671.South Korea’s currency has gained 3.9 percent versus the dollar this month, after surging 11 percent in March, as signs the global recession is abating bolster demand for emerging- market assets.“Overall the won’s uptrend is valid though the pace of gains may not be as fast as last month,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul. “Demand and supply of dollars are well balanced as exporters settle deals around mid-1,300, while importers buy on dips in the dollar.”