Forex Blog: Currency Trading News & Analysis.

August 10th 2006

ECB to further tighten money supply

Last week, the European Central Bank raised interest rates to 3%. This move had been telegraphed to investors over the preceding few weeks, and the markets hardly stirred when the rate hike became official. Investors are much less certain about what the future will bring, but the consensus is the ECB will continue to hike rates. Growth is slowly picking up, and decreasing unemployment is removing slack from the labor markets. Meanwhile, Europe’s inflation rate, the indicator which the ECB openly uses a basis for conducting monetary policy, is hovering around 2.5%, which means the bank could certainly stand to raise rates further, to the tune of 50 or 100 basis points. Unfortunately for USD bulls, the ECB is beginning to tighten just as the Fed nears a peak in its interest rate cycle, which will make investing in the EU a more attractive option. The Economist reports:

The ECB has said for a while that the euro area’s recovery is becoming more broadly based, shifting from exports towards domestic demand. If the American economy is slowing sharply, that is just as well.

Read More: Monetary policy in the euro area

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Posted by Adam Kritzer | in Central Banks, Euro | No Comments »

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