ECB Rate Decision: What to Expect

With the Euro trading above 1.40, the European Central Bank interest rate decision is one of the main events this week. Interest rates are not expected to be changed, but as usual, the accompanying press conference by ECB President Trichet could deliver sharp volatility.

The market will be looking for comments about the Euro. If Trichet completely avoids talking about the currency, that would be bullish for the currency because it would mean they given all that has happened in the financial markets, the ECB remains staunchly hawkish because they cannot deal with the fact that consumer price inflation is above their comfort level. If he does address the level of the Euro however, then that would be the trigger for a move to 1.40. With rampant speculation of physical intervention, we think the latter is more likely. The ECB will most likely elect to verbally intervene first and tomorrow?s press conference would be a good opportunity to do so.

[B]Written by Kathy Lien, Chief Currency Startegist for[/B]