Euro Falls Even as ECB Raises Interest Rates

The euro fell today as the news that Portugal will seek a bailout overshadowed the expected increase of the interest rates by the European Central Bank.

ECB President
Jean-Claude Trichet was giving hints about possible rates hike for a long time, but not everybody believed him as the state of the peripheral economies of the European Union wasn’t supportive for such move. Nonetheless, the ECB raised its minimum bid rate from 1 percent to 1.25 percent, as was expected, but the question about the impact of such decision on the indebted nations of the region remains. Now, after Portugal submitted itself to the same fate as Greece and Ireland, eyes of market participants turned to Spain. Can it withstand the debt crisis or will it follow other indebted countries in seeking a bailout?

Trichet said on the press-conference after the rates decision today:

The adjustment of the current very accommodative monetary policy stance is warranted in the light of upside risks to price stability that we have identified in our economic analysis. A cross-check with the signals from our monetary analysis indicates that while the underlying pace of monetary expansion is still moderate, monetary liquidity remains ample and may facilitate the accommodation of price pressures. All in all, it is essential that the recent price developments do not give rise to broad-based inflationary pressures over the medium term.

EUR/USD fell from 1.4331 to 1.4261 as of 13:14 GMT today. EUR/JPY dropped from 122.51 to 121.36 and EUR/CHF slid from 1.3167 to 1.3106.

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