Euro Slumps as ECB Holds Interest Rates Unchanged

The euro tumbled today as the European Central Bank left the interest rates unchanged and the comments of bank’s President Jean-Claude Trichet caused the speculation that the rates will remain unchanged for the whole year.

The Governing Council of the ECB decided at today’s meeting that the interest rate on the main refinancing operations will remain unchanged at 1 percent. Such decision was generally expected by market participants. Trichet said in the introductory statement to the ECB press conference today:

Recent economic data confirm the positive underlying momentum of economic activity in the euro area, while uncertainty remains elevated. Our monetary analysis indicates that inflationary pressures over the medium to long term should remain contained. Inflation expectations remain firmly anchored in line with our aim of keeping inflation rates below, but close to, 2% over the medium term.

Trichet’s satisfaction with the current rate of inflation caused the speculation that he won’t increase the interest rates in the near future or even for the whole year. Some economists say that he wouldn’t be able to raise the rates even in case of higher level of inflation as European economy isn’t ready for higher rates.

EUR/USD slumped from 1.3808 to 1.3632 as of 20:22 GMT today, while EUR/JPY dropped from 112.61 to 111.29.

If you have any questions, comments or opinions regarding the Euro,
feel free to post them using the commentary form below.