Euro: Trichet’s Hawkish Comments Put to the Test

Euro: Trichet’s Hawkish Comments Put to the Test

Despite signs of slowing growth, ECB President Trichet remained characteristically hawkish at the press conference following Thursday’s monetary policy decision. Next week, his hawkishness will be put to the test with GDP and industrial production reports due for release. The latest price action in the Euro suggests that the market is still skeptical of how long the ECB can maintain their current stance. Perhaps Trichet needs to see a drop in employment before he caves. In the meantime, the ECB’s hawkishness cannot be ignored. Part of the reason why the EUR/USD fell from 1.60 down to 1.5280 on Thursday was speculation that the ECB may be less hawkish. Now that they have proved otherwise, there could be some profit taking on Euro shorts. Yet it will be just a matter of time before weakening economic data forces the European Central Bank to shift their focus. By that time, the ECB could be making the first interest rate cut when the Federal Reserve is nearly done.