Feb. 10 (Bloomberg) -- The euro rose to the highest in a month against the dollar in London after European Central Bank Chief Economist Otmar Issing said he disapproves of short-term action to try to influence exchange rates. Issing said in an interview with the German newspaper Sueddeutsche Zeitung the euro's gain helps slow inflation and ``there is no point in unleashing a short burst of fire.''
European officials are ``fairly comfortable with the level of the euro so far,'' Monica Fan, a currency strategist in London at Royal Bank of Canada, said in a televised interview with Bloomberg News. ``The market will test their resolve and confidence at $1.30.'' As of 8:33 a.m. in London, the euro rose to $1.2769 from $1.2700 late yesterday in New York, according to EBS prices. The European currency was also at 134.60 yen from 134.09. Against the yen, the dollar fell to 105.42 from 105. 57. European Monetary Affairs Commissioner Pedro Solbes said the region's finance ministers didn't discuss currencies at a monthly meeting yesterday. Ministers including Austria's Karl- Heinz Grasser and Belgium's Didier Reynders said they are banking on Saturday's Group of Seven condemnation of ``excess volatility'' to slow the euro's rise against the dollar. ``The euro rose yesterday after the G-7 statement, but it didn't really take off because there was speculation finance ministers would discuss selling euro's,'' said Aziz McMahon, a currency strategist in London at ABN Amro Holding NV. ``Now that it didn't happen, people have more confidence buying the euro.''
Welteke Comments
In other trading, the dollar weakened against the British pound, Swiss franc, the Australian dollar and the Canadian dollar. Gold prices rose. Europe's single currency increased 20 percent against the dollar in 2003 and added 1.2 percent this year, making exports by companies such as Siemens AG more expensive and hampering Europe's recovery from the weakest economic growth in a decade. ECB council member Ernst Welteke yesterday ruled out immediate sales of the currency. Asked if the ECB would cut interest rates or sell euros, he said ``we're not in that situation right now.'' The central bank forecasts an inflation rate of about 1.8 percent for 2004, below the ECB's 2 percent limit. In January, inflation stayed at 2 percent as the euro's appreciation curbed the cost of imports. The yen declined against the euro after Japan's parliament made 21 trillion yen ($198.6 billion) available to the Ministry of Finance for sales of the currency. The amount is more than the 20.4 trillion yen Japan sold last year and equates to around a quarter of Japan's foreign currency reserves.
Japan `Cleared'
The money was approved by the legislature yesterday along with an extra budget for the fiscal year ending March 31. The Ministry of Finance is also seeking a 40 trillion yen allocation for currency purchases for next fiscal year. It ordered record sales of 7.15 trillion yen in the four weeks to Jan. 28. Finance Minister Sadakazu Tanigaki said over the weekend the Group of Seven's call for ``more flexibility'' in exchange rates wasn't aimed at Japan, suggesting G-7 countries won't oppose efforts to stem the yen's 13 percent rally in the past six months. ``Japan is cleared both of financial and political constraints,'' said Minoru Shioiri, foreign exchange manager in Tokyo at Mitsubishi Securities Co., a unit of Japan's biggest bank by market value. ``It will continue to sell its currency.''
Exporters Hurt
The yen's advance is cutting profits at exporters such as Toyota Motor Corp., which has said it loses 25 billion yen in operating profit for every one yen the Japanese currency gains against the dollar. Mitsui Chemicals Inc., Japan's biggest petrochemical maker, pared its annual net income forecast for the year ending March 31 by 37 percent, in part because of a stronger yen. Japan will probably prevent its currency from rising beyond 105 per dollar by March 31, Morgan Stanley said yesterday in a report. ``Yen-selling is considered to have obtained the G-7's nod of approval,'' wrote Toru Umemoto, a currency strategist at Morgan Stanley in Tokyo.
The dollar also weakened on speculation Federal Reserve Chairman Alan Greenspan, who is testifying to Congress tomorrow on the economy and interest rates, will signal an increase in the bank's target interest rate isn't imminent. ``Greenspan is unlikely to hint at a rate increase,'' said Xinyi Lu, chief strategist at UFJ Bank Ltd. in Tokyo, a unit of Japan's fourth-largest lender. ``The dollar remains on a weakening path because of the lower interest rate.'' The euro may gain to $1.28 this week, he said. The Fed's benchmark short-term interest rate is 1 percent, half the level of the ECB's benchmark rate//www.bloomberg.com