European focus: The pound rose

The euro rose against the majority of its major peers after European Central Bank board member Jose Manuel Gonzalez-Paramo said interest rates will have to rise if inflation doesn’t start to decline by the end of this year

Europe’s single currency snapped a three-day decline versus the dollar and climbed a second day versus the yen.

“We cannot let it get beyond our control,” Gonzalez- Paramo said in an interview with Spain’s ABC yesterday, referring to inflation. Even so, the ECB thinks the pick-up in inflation is temporary, linked to raw materials prices, and that it will start to fall again at the end of the year, he said, according to the newspaper.

German reports this week will show factory orders climbed from a year earlier and industrial production expanded.

The pound rose on speculation the Bank of England will be forced to raise interest rates to contain inflation.

The pound rose before a report likely to show U.K. manufacturing expanded for an eighth month in December. Output rose 0.4 percent after a 0.6 percent gain in November, the Office for National Statistics is predicted to say Feb. 10.

On the same day, the Bank of England is forecast to keep its bond-purchase plan at 200 billion pounds ($323 billion) and leave benchmark rates at a record low 0.5 percent, according to economists in a Bloomberg News survey.

“The risk is to the upside at the moment for sterling because the Bank of England is clearly getting more hawkish,” said Thomas Harr, Singapore-based head of Asia foreign-exchange strategy at Standard Chartered Plc. “You will see support for sterling around that meeting.”

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