The euro advanced this week despite risk aversion sentiment, caused by the unrest in Middle East, as the European Central Bank signaled that an increase of the interest rates isn’t out of question.
ECB President Jean-Claude Trichet said on the press-conference in Frankfurt after the central bank kept its benchmark rate unchanged at 1 percent that “increase of interest rates in the next meeting is possible” as the inflation accelerates. This statement caught analysts by surprise as they expected an increase of the rates not sooner than in the second half of this year. The ECB key rate was unchanged since May 2009. Trichet warned, though, that nothing is prescribed and the actual decision will be taken on the meeting of the policy makers of the ECB.
Some market participants are questioning the possibility of the interest rates increase. It’s true that the sovereign-debt crisis wasn’t featured in the news lately. But doest that mean that the problems have gone away, that Europe’s economy suddenly came out from the crisis? Not everybody believes in this, but the rising bets on the interest rates increase by the ECB shows that many traders look favorably on Europe. At least the ECB talks about a rates hike while the Federal Reserve, as well as central banks in other developed nations, remain dovish.
EUR/USD posted the significant weekly gain, surging from 1.3737 to 1.3984 this week. EUR/JPY jumped from 112.21 to 115.10 after it previously advanced to 115.97. The advance of EUR/GBP was less impressive as the currency pair declined from 0.8541 to 0.8459 during the week, but it managed to rise to 0.8594 by the end of the week.
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