Prices were up on Friday and for the week on German government bonds, the benchmark bonds for the eurozone.

Continuing low yields there are seen as yet another indication that the European Central Bank will not be cutting interest rates anytime soon.

Some analysts said that the reason for the rise in German bond prices was that China’s currency revaluation could increase investor demand for European government debt.

Yields on the 10-year Bund were down nearly 6 basis points on the week to a yield of 3.23 percent, leaving the margin between yields on 10-year US and German bonds at 1 percentage point.

This was the biggest gap between the two in five years.

Tags: European Stocks & Shares News, Interest Rates News by Brian Turner
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The euro gained 1.1 percent to $1.2200 in relation to the US dollar on Tuesday, for a two-day gain of 1.9 percent. This put the dollar at a three-week low against the euro. Some analysts saw the dollar’s decline as a correction rather than a sign of new weakness in the US currency, but news positive to the euro also played into the shared currency’s gains.

One member of the European Central Bank’s governing council was quoted as saying that rising oil prices could force the ECB to raise its inflation forecast, lessening the chances that eurozone interest rates would be cut in the near future.

In addition, the Organization for Economic Co-operation and Development said that the ECB could reasonably hold interest rates at present levels as long as the outlook on inflation stays consistent with price stability in the medium term. The OECD had recommended that the ECB cut eurozone interest rates by 50 basis points less than two months ago.

Tags: Exchange Rates News, Interest Rates News, European Economy News by Brian Turner
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The euro reacted badly to the news of a larger than expected interest cut from Sweden, and to the increased talk the rate cut triggered that the European Central Bank might follow suit and cut eurozone interest rates soon.

Bad consumer purchasing data from France added to the speculation.

Despite the insistence of ECB officials that there is no consideration being made to change interest rates in either direction and that the current rate of 2 percent is “appropriate”, the euro fell in relation to the US dollar, sterling and the yen.

The shared currency fell 0.1 percent to $1.2137 in relation to the dollar, lost 0.2 percent to sterling, to £0.6640, and declined 0.9 percent to ¥131.70 against the yen.

Tags: European Stocks & Shares News, Interest Rates News, ECB: European Central Bank News, European Economy News by Brian Turner
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The European Central Bank announced on Thursday to maintain its main interest rate at 2 percent for the 24th month in a row. The decision was expected, especially considering the recent votes rejecting the European Union constitution by the French and the Dutch.

The decision did not please those who have been calling for the ECB to cut interest rates to stimulate economic growth. Those who have been calling for rate cuts include the Organization for Economic Co-operation and Development (OECD), the Ifo Institute in Germany, Germany’s economics and labour minister, and several Italian ministers.

Reports that business confidence in Germany is down and that growth expectations for the eurozone in 2005 and 2006 have been revised downward have helped stimulate the recommendations that rates be cut. The OECD has recommended that the rate should fall by 50 basis points.

Such a cut is unlikely, however, considering that Jean-Claude Trichet, president of the ECB, believes that interest rate cuts would in fact hurt prospects for growth and has said that he would like to see eurozone interest rates rise as soon as conditions permit it.

Tags: Interest Rates News, ECB: European Central Bank News by Brian Turner
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In it’s twice-yearly report on the outlook of the global economy, the Organization for Economic Co-operation and Development called Tuesday for eurozone interest rates to be reduced by 0.5 percent.

This contradicts the position taken by the European Central Bank, which insists that a drop in interest rates would be harmful, is not supported by “sensible” economists, and that interest rates should in fact be raised.

It may be difficult for the ECB to maintain this position in the face of support for the OECD position from Italian ministers as well as from the German minister for economics and labour.

The OECD came to its conclusion after determining that the lack of recovery in the eurozone economies could not be completely explained by external factors such as high oil prices and the war in Iraq.

In addressing other economic issues, the OECD report cut its growth forecasts for all leading economies, putting the blame on imbalances between global economies. It also predicted that the US would see its current account deficit grow to $900 billion (€715 billion) next year.

Tags: Interest Rates News, European Economy News by Brian Turner
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The European Central bank decided on Wednesday to keep its main interest rate at 2 percent for the twenty-third straight month in a row.

Analysts suspect that the weak economy will mean that interest rates will probably remain the same until at least autumn.

In the eurozone growth is weak and unemployment is rising, while consumer confidence is low. At the same time, inflation rates remain under control.

The European Commission has already revised earlier 2005 growth estimates in the eurozone. The current estimate for 1.6 percent growth is down from 2 percent.

The Commission put the blame for the revision on high oil prices and the strength of the euro. Additionally, German’s six top economic institutes changed their growth estimates for 2005, revising them down to 0.7 percent from an earlier estimate of 1.5 percent.

Although some members of the ECB’s governing council are believed to be in favor of raising interest rates, the current unfavorable economic conditions make such an action unwise at the present time.

Tags: Interest Rates News, ECB: European Central Bank News, European Economy News by Brian Turner
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The European Central Bank retained interest rates of 2% for the nineteenth month in a row. With the euro still climbing in value against the USD, any rises were entirely out of the question. Despite fluctuating oil prices, general inflation aims remain on target.

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