Forex Investment and Currency Trading

Upon maintaining rates at 4.25% at its September meeting, the ECB Governing Council left the key message in the top paragraph of its statement unchanged: The ECB sees upside risks to price stability and believes that its “current monetary policy stance will contribute to achieving our objective (of price stability).” This seems to virtually rule out a rate cut for October and November and makes it clear that the ECB does not expect to change rates for the foreseeable future if inflation and growth develop roughly in line with its new forecasts.
In its language and its staff projections, the ECB [...]

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The ECB has just announced a 25 bp rate hike to 4.25%, as expected - and strongly hinted at last month’s press conference.
At last month’s press conference, it was clear that the pick up in inflation and inflation expectations was a major concern for them (”it is imperative tp secure that medium to longer term inflation expectations remain firmly anchored”) - but since then, inflation has pushed still higher while economic activity indicators have come in slightly stronger than expected. So, in spite of stock markets and concerned politicians, the ECB felt obliged to follow through on their threat.
The key [...]

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ECB clearly ups the hawkish ante…
While delivered with a French accent, this week’s press statement had a decidedly Germanic tone with its clear hawkish leanings redolent of ECB Council uber hawks Weber and Liebscher. The opening paragraph contained a clear threat of higher rates via the insertion of notes that “…inflation is now expected to remain high for a more protracted period than previously thought”, the Bank is “in a state of heightened alertness” and that it will prevent the emergence of second round effects by “acting in a firm and timely manner”. More
tellingly, meanwhile, was the removal of the [...]

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Euro-Zone
Unusually blunt comments from ECB President Trichet today indicated that Euro-zone rates are likely to move higher in the near future. Market is revising its forecasts accordingly, and now sees a 25bps rate hike in July. Market expects rates to stay at 4.25% for the rest of 2008, rather than falling at the end of 2008 as it had previously anticipated. However, market forsees that a reversal of policy will be needed from early on in 2009, and looks for rates to fall by 75bps in the first half of next year.
Accelerating inflation the prime concern
Inflation, which jumped to 3.6% [...]

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