LONDON, Jan 22 - The euro hit a one-week high on the dollar on Thursday as investors treated a lack of recent aggressive opposition by euro zone policymakers to renewed euro strength as a green light to buy the single currency. Germany's deputy finance minister Caio Koch-Weser said the euro should not bear the brunt of global imbalances and it was wrong to say Group of Seven finance ministers would not agree at their February meeting on a plan to stop the euro's rise. But in its monthly bulletin, the European Central Bank merely reiterated its concern about excessive currency volatility. ECB chief economist Otmar Issing is due to speak at the World Economic Forum in Davos later. But he again hinted on Wednesday euro strength was not a one-way bet and interest rates were unlikely to fall, echoing council member Nout Wellink. "In general the feeling is the ECB has done their job in slowing the pace of euro appreciation. Down the road, they still think the dollar will have to depreciate a lot to deal with the U.S. current account deficit," said Marvin Barth, global currency economist at Citibank. By 1230 GMT the euro was trading at $1.2705 , having risen to $1.2752 earlier to add four cents just since Monday. The euro hit an all-time high near $1.29 last week. The dollar also fell against the yen, down half a percent on the day to a one-week low of 106.30 . Also speaking in Davos, OECD chief economist Jean-Philippe Cotis said any further sharp rise in the euro could force the ECB to cut interest rates.
PRELUDE TO G7
ECB President Jean-Claude Trichet, council member Ernst Welteke, and Issing are all due to speak in Davos on Friday. "The softening in the tone of verbal intervention by euro zone policymakers is reintensifying the pressure on the dollar," said Steven Pearson, chief currency strategist at Halifax Bank of Scotland Treasury Services. "Europe is very wary that they are the only ones that have a free-floating exchange rate (against the dollar), which has good and bad aspects. But there is no strong political consensus in the need for intervention. This might change if we see levels above $1.30." Japan expressed familiar warnings on Thursday. Vice finance ministers for international affairs Zembei Mizoguchi and vice finance minister Masakazu Hayashi both said Japan would act in the foreign exchange market if necessary. Hayashi also confirmed what other officials have said, that foreign exchange would likely be discussed at the G7 finance ministers' meeting. G7 deputy finance ministers are due to meet in Brussels next Monday to work on the agenda for the February meeting. ECB President Jean-Claude Trichet is scheduled to address the Davos forum on Friday. "He seemed less concerned about the euro. The recent move lower in the euro has reduced some of the ECB's concern and this opens the euro to further strength," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez.//