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ECB press conference sees a less hawkish Trichet jawboning

Written by Sam Coxhead on February 4th, 2011.      0 comments

8:40 AM (NZT) The ECB press conference proved to be interesting overnight. As widely expected the ECB left the cash rate unchanged. ECB head Trichet  made comments that were not as “hawkish” on rates as he was in his previous address, stating that inflation looked to be contained over the medium term. This subtle change in stance from his previous stronger comments in relation to dealing with inflation have spooked some bought EURO investors. Since the speech we have seen a sharp fall in the EURO as these speculative investors bailed on their bought positions.

Interestingly, Mr Trichet was hawkish when the Govt debt fears were high and the Euro-zone peripheral member funding costs were blowing out on a daily basis. Over the last week or so we have seen a steady contraction in the credit spreads, meaning lower funding costs for those fragile member states. Along with the lower credit spreads the EURO has appreciated. A higher EURO is not good for the competitiveness and value of the Euro-zone export sector. Considering that Germany is an export powerhouse , and they are obligated to fund the largest portion of the European Financial Stability Fund (EFSF), it would not defy the odds that Trichet  may have toned down his inflation rhetoric to cap the strengthening EURO. If this game of “jaw boning” continues expect to see more rangy trading in the FX markets for the foreseeable future.
The action saw both the NZD and AUD make up ground against the EURO and to a slightly lesser extent the GBP, albeit they remain in familiar ranges.
    Last 24 hours trade
  Current level Low High
NZD/USD 0.7726 0.7691 0.7796
AUD/USD 1.0133 1.0061 1.0154
NZD/AUD 0.7625 0.7611 0.7737
AUD/NZD 1.3115 1.2925 1.3138
NZD/GBP 0.4790 0.4744 0.4822
NZD/EUR 0.5675 0.5583 0.5675
NZD/JPY 63.09 62.91 63.67
NZD/CAD 0.7658 0.7616 0.7663