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ECB Unlikely to Raise Rates in 2010

Last updated 1/14/2010 9:42 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

ECB chief Jean Claude Trichet gave a generally subdued assessment of growth prospects in the Eurozone suggesting that economic activity in the 16 member union will be uneven and subject to possible downside risks. He even entertained the notion of a negative quarter this but noted that on balance the growth for 2010 a whole is projected to be mildly positive.

On the subject of sovereign credit risk and budget deficit problems of Eurorone member Greece, Mr. Trichet replied  the he would not comment on the “absurd hypothesis” that the country could be forced out of the European monetary union if it does not get its fiscal affairs in order. At the same time he stated categorically that the ECB will not relax it collateral rules regarding the ratings of sovereign debt  instruments it accepts on  deposit, setting up a possible fiscal crisis if Greek bonds should slip below investment grade status by this time next year.

Overall, Mr. Trichet’s tone suggested that the ECB is no hurry to tighten monetary policy and may in fact remain stationary for most of this year. With little prospect of ECB rate hikes in the foreseeable future we remain convinced of our “war of attrition” analysis in the EUR/USD as the pair continues to pivot around the 1.4500 level with little directional pull from either side. With both European and US economic data reports  disappointing investors as the year begins   the pair appears destined to remain range bound for the time being as currency traders attempt to ascertain which economy will show faster growth in 2010 before making their bets.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.