ECB Rate Decision – A non event

Today, the European Central Bank will make a decision about the interest rate in the Eurozone. This is supposedly the biggest event this week, after last  week’s Non Farm Payrolls in the US.

Most economists and analysts are expecting a half a percent cut, from 2.5% to to 2%.  

But Jean Claude Trichet and his friends at the ECB usually don’t make big surprises. The rate will be cut as expected.

On one hand, Ireland might call the IMF for help, Spain’s credit was degraded, and Germany lost it’s position as the world’s third economy to China.

On the other hand, Trichet would not like waste all the ammunition. In the last  rate decision, he stated that  the central bank must ‘beware of being trapped at nominal levels that would be much too low.”

Forex Market Reaction

The market already adjusted itself to the new situation: the Euro depreciated against the dollar. EUR/USD now at 1318. Only a big surprise would send the Euro below 1.30.

The Euro also lost ground to the Japanese Yen, hitting a new low of 116.57 before retracting a little bit. EUR/JPY will probably not fall much lower.

So, the ECB Minimum Bid Rate Decision might shake the market for a few minutes, but won’t make a big difference.

Update: More about the ECB rate decision: Macro Man posted a poll that sparked an interesting discussion, and Kathy Lien wrote an interesting analysis.