ECB Kept Its Benchmark Rate At 1.25% - 10.6.2011


US stock markets finally advanced yesterday - first time this week - after a report showed the US trade deficit unexpectedly narrowed in April. The nation’s trade deficit declined by 6.7% in April to 43.7 billion dollars from a revised 46.8 billion in March, the Commerce Department said. According to the data imports from Japan dived by a record amount in April to 8.8 billion dollars - the lowest level in a year - as a consequence of the March 11 earthquake. Another report showed an increase in the number of initial jobless claims to 427000 from the previous 426000. Nevertheless, the dollar gained support against its major peers yesterday and is extending gains today. The dollar index, which measures its dynamics against a set of six currencies, rose to 74.36 from 73.70.

 

On the contrary the euro fell under pressure after yesterday’s press conference of the head of the European Central Bank Trichet. The ECB left its key interest rate unchanged at 1.25%. However Trichet concluded the central bank would continue maintaining “strong vigilance” on inflation pressure, a frase which was considered as signaling for July rate increase, and added that “It means that we are in a mode where there might be in the next meeting an increase of rates, but we are never pre committed. We are not signaling any particular pace for the next decisions on our interest rates.” Nevertheless the bank lowered its forecast of inflation for the next year to 1.7%, and it could mean that the bank will not hurry in raising rates after July. Moreover the bank issued its growth forecasts for the region. According to the bank’s estimations, the eurozone economy will grow by 1.9% in 2011, up from the previous 1.7% projection, but will decelerate to 1.7% in 2012, the ECB reported. The common currency may also be under pressure amid concerns over the Greece debt problem and a lack of agreement between European authorities. Trichet rejected any direct ECB participation in a second bailout for Greece, escalating a clash with governments as they rush to craft a solution involving investors. Pair EUR/USD faced resistance at 1.47 earlier this week and extended losses in Asian trading hours today falling below 1.45.

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