ECB hikes interest rates

For the first time in nearly five years, the European Central Bank (ECB) has hiked interest rates, from 2% to 2.25%. Three weeks ago, Jean Trichet, President of the ECB, signaled that the ECB would likely raise rates at its December meeting. For that reason, the markets did not react strongly to the news. Moreover, Trichet cautioned investors not to expect additional rate hikes. However, as inflation is still hovering well above the ECB’s target of 2%, thanks in part to high energy prices, it seems the ECB will likely follow up with another round of rate hikes next month, which should provide broad support for the Euro. The Economist reports:

But Mr. Trichet must tread carefully. Higher interest rates mean a stronger currency, which can hobble the exports crucial to economic recovery in the euro zone.

Read More: Trichet’s dilemma