Currency news - ECB under pressure

ECB under pressure - 07-08-08

The Euro was unable to sustain the advance above 1.55 on Wednesday and drifted weaker ahead of the New York open as underlying dollar confidence remained firm. Oil and commodity prices initially rallied, but also failed to sustain the advance and tested new 3-month lows in US trading which also triggered fresh buying support for the US dollar. The US currency pushed just beyond the 1.54 level which was a fresh 7-week high.

Attention on Thursday will be clearly on the ECB policy decision even though a change in interest rates is unlikely. The press conference by the central bank will be very important for Euro sentiment over the next few weeks.

The central bank will certainly remain concerned over inflation, but markets will be watching comments on growth and interest rate prospects very closely given criticism over the July interest rate increase and the evidence of a sharp downturn in the Euro-zone economy over the past few weeks.

If the ECB signals increased fears over the growth outlook and makes any hint of a policy reversal, then the Euro will be vulnerable to further heavy selling pressure. Markets will also be on high alert over any comments on exchange rates.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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