At its monthly meeting to determine the region’s monetary policy, the European Central Bank decided to leave rates unchanged at 3.5%, but signaled that it would likely hike rates next month. The Bank’s president, Jean-Claude Trichet, who is an advocate of transparency, used his trademark phrase of “strong vigilance” to convey the Bank’s intentions to financial markets. The move will propel European rates ever closer to US rates, narrowing the differential which many believe is the only thing standing in the way of a long-term USD decline. However, European political pressure will likely prevent rates from being raised too high, as politicians fear an expensive Euro is hampering the EU economic recovery. The Financial Times reports:

Mr Trichet, who stressed the ECB’s independence, expected inflation to rise again this year and said that “the decisions we take today are to ensure price stability later on”.

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