The European Central Bank announced that it will keep its benchmark interest rate at 1% today. On top of that, the ECB unexpectedly announced that it is raising the inflation projection for the eurozone. The news has been greeted with optimism about the 17-currency region, and the euro is gaining against the US dollar and other major currencies.
Previously, the ECB had expected eurozone growth for 2012 to be between -0.4 percent and +1.0 percent. The new projection puts growth between -0.5 percent and +0.3 percent. This news has some thinking that the eurozone is strong enough to get through the sovereign debt troubles. The fact that the situation in Greece appears on the verge of resolution is also helping this idea.
Private bondholders are expected to agree to Greek debt swaps that should keep the country from a hard default. Instead, Greece will experience what many consider a “selective default,” and be eligible for bailout funds from the ECB and IMF. The news is helping the euro in Forex trading.
Also risk-positive for the currency market is the latest decision by the BOE not increase bond purchases. After a slight ramping up of quantitative easing in February, the Bank of England is content. However, euro is higher against the UK pound.
At 15:14 GMT EUR/USD is up to 1.3231 from the open at 1.3149. EUR/GBP is higher at 0.8381, up from the open at 0.8353. EUR/JPY is up to 107.7280 from the open at 106.6345.
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