ECB President About Strength of Euro

The European Central Bank and the Bank of England both left interest rates unchanged; which was right in line with the market's expectations. Trichet's speech which was one of the most anticipated event risks this week but it proved to be a non-event. For a central banker like Trichet, this may be the most desired market reaction because central bankers hate volatility.

Ultimately Trichet is very worried about inflation but at the same time he feels that oil and commodity prices could weigh on growth. As a result, he did not indicate that raising rates was their immediate intention (note: he did not use the words strong vigilance). Instead, the ECB wants to wait for more information before deciding what to do next with interest rates, so don't expect a move in December. For the time being, they are still leaving the door open to raise interest rates in the first quarter of next year.

In regards to the Euro, Trichet did not mention the currency at all in his introductory statement. Only in the question and answer session was he forced to address dollar weakness and euro strength. Trichet did his best to dance around the question about exchange rates, repeating his stance that disorderly movements are undesirable and the strong dollar is in the interest of the US. It is not a coincidence that Trichet avoided talking about the Euro because inflation is still a big problem and they need a strong Euro to bring inflationary pressures down.

Overall his tone is still more hawkish than dovish and even though we are disappointed that he did not say that strong vigilance is needed towards inflation, ECB policy remains positive for the Euro. Next up is the Federal Reserve's Ben Bernanke who will be addressing the Joint Economic Committee. Kathy Lien, Chief Strategist write on DailyFX.Com