As it was widely expected the European Central Bank has kept its interest rate on hold at its actual 3.75%. The markets have reacted after JC Trichet press conference, where Mr. Trichet has left out the word "vigilance" signaling the bank's stance on inflation observances, his stance on inflation remains hawkish as he said the bank will "very closely monitor" prices developments and will act in a "firm and timely manner." Finally the president of the ECB stated that "rates moderate" while "policy stays on accommodative side."
The Euro has initially taken this as bad news but a quick reaction has sent it up again until 1.35. The Euro Futures are pricing in an 80% probabilities of a rate hike in June.
Check the effect that the result of the meeting is having over the pairs in our Rates and Charts Section or compare the movements of the different banks in our World Interest Rates Table.
In-Depth Analysis
- ECB: Trichet hints at June rate hike by KBC Bank
- Currency Journal - Euro up on hawkish comments after as is ECB decision by Performance Capital
- Daily Market Report: Forex - The Euro trimmed its gains against the Dollar after the ECB left rates unchanged at 3.75% by ICICI Bank
- ECB: Trichet still hawkish by Danske Bank A/S
- Daily Fx Strategy - Euro Unfazed by Trichet's Tactical Change by CMC Markets NY
Related news
- The ECB leaves interest rates unchanged (FXstreet.com)
- ECB Leaves All Key Interest Rates Unchanged (Dow Jones)
- ECB leaves rates unchanged (AFX News)
- Euro At Two-year High Vs. Dollar On Rate Outlook (Dow Jones)
- Trichet says will not contradict mkt expectations of further rate hike in June (AFX News)
- Euro edges back up after short-lived dip on Trichet comments (AFX News)
- Trichet says ECB will closely monitor all inflation risks, act firmly (AFX News)
- Euro Dips A Bit As ECB Hints At June Rate Hike (Dow Jones)
- Trichet says ECB will closely monitor all inflation risks, act in 'firm' manner (AFX News)
- ECB Trichet:Rates Moderate,Very Close Monitoring Is Warranted (Dow Jones)
Analysts' comments
- Aurelio Maccario, economist at Unicredit:
"By resorting to the 'monitor very closely' reference, Trichet clarified that the next rate hike is going to be delivered in June rather than May." - Reuters - Boris Schlossberg, currency strategist at DailyFX.com:
"With the euro at 160 or higher against the yen and the BOJ having no intention of raising rates until well after the summer elections, the only way the Europeans can get the euro-yen rate to come down is by delaying their own rate hikes to blunt that carry-trade demand that has been insatiable." - FXCM - David Jones, Chief economist at DMJ Advisors:
"There's little expectation that we'll see a rate hike come through today, but consensus is building that another quarter point will be added in May or June." - IHT - Geoff Kendrick, currency strategist at Westpac:
"The market is comfortable with the consensus that there will be a rate hike in June. If Trichet uses the word 'vigilant' implying there will be a speeding up in (monetary) tightening the euro could be up massively. But I suspect it will not be used this afternoon." - Reuters - Tim Clayton, economist at Investica:
"If Trichet uses the term ???strong vigilance??™, this would hint at a May rate increase which would tend to strengthen the Euro. A firm, but more measured stance looks likely which will limit the potential for strong Euro buying given that a June increase is priced in with markets also discounting an increase to at least 4.25% this year. Underlying Euro sentiment will still remain firm given confidence in the underlying economy." - Investica