The Euro bulls ride on the upcoming rate hike in the Euro-zone. Higher interest rate means a stronger currency. But wait! the talks about a rate hike are already hurting Europe’s core, even before this happened. And there are more reasons for Euro weakness. In the past few months, the ECB raised its voice against inflation. ECB president and other senior officials warned against inflation in many occasions, and hint that they are ready to act and raise the rates. This talk peaked in the recent rate decision, when Trichet not only used the code words “strong vigilance” (meaning a rate hike in the next decision) but also explicitly explained the meaning and said out loud that a rate hike is likely in April’s meeting. Trichet has a huge influence over EUR/USD. His words pushed the common currency higher. A higher interest rate draws more money – it makes a stronger currency. But why raise the rates? Since inflation is on the rise, even if this inflation is imported – oil and other commodity prices. This inflation isn’t in the core products and isn’t driven by demand. The economies aren’t really doing well. Some economies are also suffering from heavy debt. Their austerity measures are already weighing on the economies. Inflation is a non-issue. A higher interest rate means a higher hurdle for economic growth in Greece, Ireland, Portugal and Spain. The hopes of recovery are diminished with a higher interest rate. Rate Hike Hurting the Core But it’s not only these troubled countries. The consequences of a premature rate hike is already felt in Germany – the all-important ZEW Economic Sentiment unexpectedly dropped from 15.7 to 14.1 points, instead of rising above 16 points. Also the figure for the whole of Europe disappointed. So, also Europe’s powerhouse is endangered. Trichet won’t be cooling a hot, growing and inflationary Euro-zone. He’ll be freezing a Euro-zone that is still struggling to defrost. EUR/USD cannot settle above 1.40 and cannot break above 1.4030. This is already a sign for the bulls. Will we see a fall? And, let’s not forget about the debt crisis. Further reading: Portugal is running out of time. Yohay Elam Yohay Elam 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 a 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. Yohay's Google Profile View All Post By Yohay Elam Forex News Today: Daily Trading News share Read Next Markets.com as a new brokerage partner for Signal Trader Yohay Elam 12 years The Euro bulls ride on the upcoming rate hike in the Euro-zone. Higher interest rate means a stronger currency. But wait! the talks about a rate hike are already hurting Europe's core, even before this happened. And there are more reasons for Euro weakness. In the past few months, the ECB raised its voice against inflation. ECB president and other senior officials warned against inflation in many occasions, and hint that they are ready to act and raise the rates. This talk peaked in the recent rate decision, when Trichet not only used the code words "strong vigilance" (meaning a… Regulated Forex Brokers All Brokers Sponsored Brokers Broker Benefits Min Deposit Score Visit Broker 1 $100T&Cs Apply 0% Commission and No stamp DutyRegulated by US,UK & International StockCopy Successfull Traders 9.8 Visit Site FreeBets Reviews$100Your capital is at risk. 2 T&Cs Apply 9.8 Visit Site FreeBets Reviews$100Your capital is at risk. 3 Recommended Broker $100T&Cs Apply No deposit or withdrawal feesTrade major forex pairs such as EUR/USD with leverage up to 30:1 and tight spreads of 0.9 pips Low $100 minimum deposit to open a trading account 9 Visit Site FreeBets ReviewsYour capital is at risk. 4 T&Cs Apply Visit Site FreeBets ReviewsYour capital is at risk. 5 Recommended Broker $0T&Cs Apply Trade gold, silver, and platinum directly against major currenciesUp to 1:500 leverage for forex trading24/5 customer service by phone and email 9 Visit Site FreeBets ReviewsYour capital is at risk.