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Jean-Claude Trichet takes note at the slowdown in Europe, but leaves room for rate hikes. He says that further moves are warranted, depending on developments. The words “monitor very closely” appear only later in his statements but they are valid. The ECB waives Portugal on collateral rules, explicitly responding to the downgrade by Moody’s.  EUR/USD now bounces back,

He also explains the decision to raise the rates (as expected) and is hinting about future policy. Every word is important for the euro, and has an impact for a long time.

Apart from future moves, Trichet will probably be asked about the debt crisis, and if the ECB will accept a roll over of Greek bonds.


  • “Very closely monitoring”. This wasn’t understood by news agencies at first. The Euro fell and recovered quickly as this is on the hawkish end of statements.
  • ECB Waivers request from Portugal – this is a response to Moody’s harsh downgrading move. This
  • Price stability takes more rate hikes into  account – A hike can happen as early as September, but more likely in October – every three months.
  • The ECB will refuse any kind of default or credit event. Trichet was furious with lots of questions about Greece, and not about monetary policy.
  • EUR/USD remains generally unchanged. Trading was very choppy, but all in all, the result was as expected.



After saying “strong vigilance” at the previous rate decision in June, and following it up with comments, the ECB delivered: the rates have been raised to 1.50%, despite the growing signs of weakness in the European economies, and despite the debt crisis.

The key words are “monitor closely” or “monitor very closely”. Another use of “strong vigilance” to hint a hike in August isn’t likely.

Live Blog

12:28 pre-conference: EUR/USD is around 1.4250.

12:34 Presser delayed. The pair already dipped to 1.4240.

12:35 Trichet notes strong growth in Q1. This doesn’t convince the euro, which continues lower.

12:35: Euro-area expansion should continue as the world growth.

12:37: Activity is expected to be dampened. Risks remain broadly balanced. Business confidence is good, but downside risks in financial markets can spill to the real economy, and risks remain in energy prices. EUR/USD is down to 1.4225.

12:39 Inflation to stay high in coming months due to high commodity prices. Second round effects unwanted. Inflation expectations must remain anchored.

12:42 Recent information shows a slowdown. EUR/USD stabilized at around 1.4230.

12:43 Trichet sums up: More moves warranted if necessary, but they depend on price moves. Monetary policy remains  accommodation.  Economic data shows deceleration in economic activity.

12:45: Now Trichet says “monitoring very closely” EUR/USD bounces back to 1.4246.

12:49 Trichet clarifies that price stability also takes rate moves into account. Hikes can appear later in the year. EUR/USD rises to 1.4260.

12:50 No pre-commitment, as always.

12:53 We say no to any kind of “selective default”.

12:56 The ECB waives the threshold for Portugal. EUR/USD pushes higher.

12:58 ECB wants the politicians to stick to the IMF plans, again and again.

13:00 We must preserve confidence.

13:01 What does Trichet think about the move by Moody’s? Trichet avoids answering…

13:03 Will the program for Ireland work? The program must be applied. The rate hike is meant for price stability all over the continent. This is a response to a question if the move hurts Ireland.

13:06 Irish program is going well.

13:08 Rate decision was  unanimous. Germany started the euro period with a deficit.

13:09 Soundness pays off! Trichet becomes angry as he explains how Germany managed its economy well, and is now better situated than before Lehman Brothers. Germany is not alone in this situation.

13:10 EUR/USD now slides back down to 1.4270. Very chopping trading continues.

13:11 Normal creditworthiness is important. Trichet looks to Asia for the second time in the presser, and shows it as an example for IMF success.

13:12 Restructuring is not the international doctrine. Private sector involvement is not normal.

13:14 Who should decide if there is a selective default? We don’t take decisions. Governments take decisions. ECB refuses all of them.

13:16 Rating agencies: we should reflect on it at a global level. It is clear that there is an element of “pro-cyclical” moves by the rating agencies. There is an oligopoly. He repeats words from the German finance ministers. This is criticism. He also says that there is no quick solution, work in progress.

13:19 Why downgrade a country that just got a bailout (a reporter from Portugal): the move by the ECB is a response to the move of Moody’s.

13:22 Asked about Italian problems, Trichet says it is important to be ahead of the curve regarding structural reforms.

13:23 Irish questions: Will Ireland be able to return to the markets due to the Greek crisis? Trichet sends the reporter to the governments.

13:25 EUR/USD stabilizing at around 1.4282, the pivotal point.

13:28 “We already said that there would be a slowdown in Q2”. Uncertainty is the sign of the times…

13:30 We see risks balanced for the euro-area, with lots of uncertainty.

13:33 Does accepting more junk debt risk the credibility? We are the only central bank that is extremely credible on price stability. Trichet is angry once again.

13:34 We need a quantum leap in  governance  .

13:37 Are these policies politically sustainable? Trichet sends the reporter to the governments and says that the failures of the past cause the current situation.

13:38 Stress tests are very important. We have confidence in the EBA.

13:40 Is there a point where you cannot accept Greek bonds? Trichet refuses to accept a credit event, selective default and a default.

13:42 Should the Greek central bank do something if Greece is in selective default? Trichet refuses to answers.

13:43 Press conference ends. Wrap up coming soon.

In the meantime in the US:

  • The ADP report for the private sector has shown a significant gain in jobs, 157K. This gave a boost to the dollar.
  • Weekly jobless claims fell to 418K, within expectations.

Tomorrow we have the all-important Non-Farm Payrolls in the US, to close a very busy week. They should be better than last month’s disaster.

For more on EUR/USD, see the euro to dollar forecast.