Euro-zone Rate Hike?

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There are speculations that the ECB may raise the interest rate sooner than later. Is Jean-Claude Trichet setting the ground for a rate hike? Trichet stopped buying bonds, for the first time since October.

Inflation in the Euro-zone reached an annual pace of 2.4% in January, above the official target of 2%. The previous month saw a pace of 2.2% in CPI. Trichet already gave a big boost to the euro when he was tough about inflation in the previous rate decision.

Alpahville editor Neil Hume reports about this:

Mr Trichet insisted that ECB monetary policy is detached from crisis-fighting moves. However, financial markets would be unlikely to take seriously a threat to raise interest rates if the ECB was still intervening heavily in markets.

And now, Trichet stopped intervening. He doesn’t feel that Portugal, Spain or Ireland need support. Is he about to fight inflation with a rate? We’ll know on Thursday. There’s a wide consensus that the rate will be left unchanged.

EUR/USD is on the rise in recent days. This is also due to the notion that the Egyptian crisis will have a peaceful resolution, but also due to this speculation about a rate hike.

See more in the EUR/USD forecast.

Jamie Coleman analyzes the big picture and says it’s 2008 all over again and reminds us of Trichet stubborn attitude towards inflation:

The ECB put aside systemic risks and raised rates in July 2008. Shortly there after the poop hit the fan for a third time…

In the meantime, we do see signs of normality as the yields on bonds of peripheral countries are falling. Spain’s ten year notes have a yield of 5.08%, after topping 5.50% last week. The last time that they were so low was… after Trichet made some massive sneak bond buying during the press conference in which he was talking about inflation. Is he preparing another trick?

It’s hard to tell what exactly Trichet is preparing for us, but this rate decision by the ECB won’t be a non-event, as many previous events have been.

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Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned the significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.

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