Focus for 14 JAN 2010: ECB Rate Decision

[imperialfxonline]

Focus for 14 JAN 2010: European Central Bank Rate Decision

ECB expected to keep rates on hold at record low of 1.0%
Press conference by ECB President Jean-Claude Trichet to be in focus
Concerns remain over Greece and Portugal credit ratings

The European Central Bank (ECB) is scheduled to announce its decision on interest rates on Thursday, 14th January at 12:45GMT with a press conference by central bank President Jean-Claude Trichet to follow at 13:30GMT. All of the 80 analysts polled in a Reuters survey expect the ECB to keep interest rates unchanged at a record low of 1.0%, where it has been since May 2009 and down 325 basis points from the 4.25% level seen in August 2008.

Trichet’s press conference will be the focus for traders as he may be subjected to questions regarding the ECB’s exit strategy for its fiscal stimulus measures. Eurozone officials have been talking about withdrawing stimulus at a ‘steady pace’ in 2010 given the encouraging signs of recovery in the economy but Thursday’s rate announcement is not expected to have much in the way of clearer signals of the exact timing of the ECB’s anticipated rate hike, especially if inflation risks are contained for the time being. Indeed, the fact that the ECB’s main weekly refinancing operations are set to continue until April 13 gives Trichet and his colleagues little reason to spook the markets with any off-the-cuff remarks.

However, the credit rating problems experienced by Greece, as well as Portugal, have become a topic of late and there is speculation that Trichet will speak out on the issue. This would mainly affect Greek and Portuguese sovereign debt but could also have some pressure on the euro if confidence over these two countries (and others also experiencing similar troubles) is seen to be wavering.

The interest rate outlook for 2010 in regards to the tightening of monetary policy is somewhat divided among analysts with the earliest expectations calling for a rate hike in mid-2010, however, economic data in the first few months of the year is set to provide more clues and the majority of forecasts now see the ECB holding on until December 2010, especially if the ECB mirrors the Fed in keeping rates low ‘for some time’.

On the currency front, the euro will find some support if Trichet comes up with hawkish comments during the press conference. The single currency has rebounded from 1.4218 to 1.4500 against the dollar over the last few weeks and the upside chart levels to focus on will be 1.4620/30 and 1.4800. In the event his statements are skewed to the more conservative side, euro bears may be looking for a re-test of the December 2009 low at 1.4218.


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