The European Central Bank appears to be the only one still injecting liquidity into the banking system and that too may becoming to an end after ECB President Trichet said that conditions are returning back to normal.
The ECB has done a fantastic job of acting swiftly and aggressively to the money market crisis. If liquidity injections do come to an end, everyone will be asking whether rate cuts are next. Eurozone economic data released this morning was all weaker than expected with German GDP, French GDP, Eurozone GDP, and French consumer prices all falling short of expectations. We continue to believe that the ECB will raise interest rates in September but that rate hike will be the central bank?s last. For all Euro traders, it will be important to continue to keep an eye on Trichet for any signs of reluctance towards a September rate hike.