The Euro rebounded on Thursday from a two-month low against the Dollar after European Central Bank President Jean-Claude Trichet said inflation remains his top concern, signaling the bank won't cut interest rates anytime soon. After the ECB left the benchmark refinancing rate at 4% on Thursday, Trichet told reporters that high energy and food costs mean the euro-zone still faces a protracted period of high inflation. Some investors had expected Trichet to temper his tough talk on inflation and focus on signs of slowing euro zone growth. That helped lift EurUsd off a two-month 1.5285, pushing it as high as 1.5442. It closed at 1.5406 up 0.4%. The ECB's continued focus on inflation at a time when global growth appears to be slowing prompted investors to reduce exposure to risk, and that boosted the low-yielding Yen that's typically used to finance risky trades.
UsdJpy eased 1.02% to 103.84 while the EurJpy drop 0.61%to 159.97. UsdChf fell -0.71% to 1.0507, while GbpUsd was steady at 1.9556 +0.25% after the Bank of England left interest rates on hold at 5%. Economic data in Britain has reflected a weakening economy, with house prices sliding rapidly, and analysts said they expected the BoE to cut rates when it meets again in June.
Analysts said the ECB, which faces rising food and energy prices on one hand and slowing growth on the other hand, is in a very difficult situation. ECB can't cut rates because inflation remains sticky. But analysts also said continued weakness in euro zone data could keep pressure on the single currency, making any return to a record high above 1.6000 unlikely.