What did Trichet Say this Morning?

As soon as the words “strong vigilance” came out of Trichet’s mouth this morning, the hawkish tone was set for the rest of the press conference. This phrase disappeared at the last meeting, triggering a wave of Euro selling. Now that it has reappeared, not only does it guarantee a March rate hike, but it also paves the way for further rate hikes beyond that.

This should help the Euro extend its strength. Trichet feels that growth has improved and even though inflationary pressures could fall in the spring and summer, it should rise once again in the second half of the year since the increase in the German Value Added Tax has yet to be reflected in CPI. As for the G7 meeting this weekend, Trichet clearly indicated that the ECB will not be influenced by the Eurozone finance ministers to stop raising rates just to stem the rise in EUR/JPY. His lack of concern for carry trades further confirms that they plan on continuing to raise interest rates even though they left them unchanged this morning.
Specific Quotes:
Strong vigilance is needed
ECB Policy is still accommodative
ECB Still Needs to Act in a firm and timely manner
Economy expansion remains solid
Consumption should improve, domestic demand to maintain momentum
Oil prices are a risk
Inflation may slow in spring summer but is expected to accelerate again in second half
VAT tax not reflected yet in CPI
Capacity Utilization approaching peaks
Liquidity ample