Trichet sees no second-round effects, backs strong dollar

European Central Bank chief Jean-Claude Trichet said on Thursday that this month's rate increase would not necessarily be the first in a series and that there were no significant signs of second-round inflationary effects. "We have not taken the decision that we would like a series of increases. But the market knows and our fellow citizens know that we will take the decisions necessary to maintain the stability of prices," Trichet told France's BFM radio.
The ECB raised eurozone interest rates this month by a quarter of a percentage point to 1.25 percent to address inflationary pressures being stoked by high energy prices. "The decision which we took in April was aimed at preventing second-round effects. At the moment, I do not see any significant second-round effects but it is the risk," he added.
The euro jumped to 16-month highs against the dollar on Thursday and looked on course for a move towards $1.50, market analysts said. Trichet said the euro's strength in foreign exchange markets was due to a "dollar phenomenon" and he welcomed assertions from US Treasury Secretary Timothy Geithner in favour of a strong dollar. "I think (a strong dollar) is in the interests of the whole of the international community and I approve of this intention," Trichet said in response to questions about the strength of the single currency. "It's rather a dollar phenomenon than a euro phenomenon, what we are seeing at the moment."
He added that the economic recovery appeared to have reached the point where it would continue without stimulus. "I think we can say that at a global level, as well as at the level of each of the major economic continents we are witnessing a recovery which is consolidating and which appears to be self-sustaining," he said.
Turning to the eurozone debt crisis, Trichet said Greek authorities must stick very closely to the terms of an adjustment programme agreed with the European Union and the International Monetary Fund as a condition of a 110 billion euro bailout package.