Yesterday, as expected, the European Central Bank (ECB) hiked its benchmark short-term interest rate to 2.5%. It’s hard to believe that only six months ago, the ECB was drawing the ire of all of Europe for not acceding to political pressure to lower interest rates. In contrast, most economists now reckon Europe’s Central Bank will raise rates two or three more times in as many months. The economies of the European Union are showing signs of growth, and inflation is alive and well. As a result, many currency traders are now predicting the Euro will get a nice kick, as foreigners begin to move funds into the Euro-zone to take advantage of higher returns. The Financial Times reports:

“US cyclical support is probably close to a peak, and Trichet’s comments have bolstered a trend that was already in place,” said one analyst, who was sticking by his forecast that the euro would hit $1.25 in three months’ time.

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