Despite weaker economic data and moderate comments from ECB President Trichet, the Euro strengthened against the US dollar.
First quarter GDP was revised down from 0.8 percent to 0.7 percent; the annualized pace of growth remained unchanged at 2.2 percent. To put this number into perspective, the annualized pace of growth in the US during the first quarter was only 1.0 percent. The German trade deficit also fell significantly due to a 3.2 percent drop in exports. Spain could fall into a recession in the second half of the year, while Irish banks are warning about their own recession. Not only will this drag down overall Eurozone growth, but it could also spillover into Germany and France. For these reasons, the European Central Bank refuses to commit to any monetary policy bias. This morning, ECB President Trichet defended their stance by saying that last week’s hike was meant as a signal.