Possible rate rise boosts the mark

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The Independent Online
The seasonal lull has descended on Europe, with few discernible events to move markets or sentiment in the past week.

The City dismissed media reports that President Jacques Chirac and Chancellor Helmut Kohl would use the possibility of persuading the UK to join EMU in the first wave as an excuse to delay the starting date, according to Martin Brooks at Goldman Sachs.

The other main talking point remains the possibility of a rise in German interest rates at the weekly repo tender on Tuesday or after the Bundesbank's next council meeting on Thursday.

On purely domestic grounds a rise in German rates could soon be justified as the recent export-led recovery broadens into an upturn in investment, with the possibility of a consumer boom when consumer taxes are cut next year, according to Philip Chitty at ABN Amro. But it would put heavy pressure on France and Italy to follow suit and neither needs a rise in rates on domestic grounds. Avinash Persaud, currency expert at JP Morgan thinks a rise in German rates is not yet justified.

Fortunately, even the possibility of a rise in German rates has helped to achieved the desired effect of strengthening the mark against the dollar.