Hawkish Comments From ECB Send Euro Higher

Hawkish comments from ECB member Weber is driving the EUR/USD through the roof. The currency pair is up close to 2.5 percent or more than 300 pips.

After cutting interest rates by 75bp earlier this month, ECB member Weber said today that a January rate cut is not a done deal. He pointed out that the ECB has never taken interest rates below 2 percent and that the central bank doesn’t have enough info to decide on a January rate cut. Market tensions are expected to ease next year and he really wants to avoid negative real interest rates. More importantly, he added that when the economy recovers, the ECB will need to raise rates promptly.

In terms of monetary easing, the ECB has been one of the least aggressive central banks this year. They have only cut interest rates by 150bp, compared to the 325bp by the BoE. This is why EUR/GBP is moving closer to my 0.90 target.

With the Fed cutting interest rates next week, the hawkish comments from the ECB will fuel further gains in the EUR/USD going into the US rate decision - there is nothing standing in the way of EUR/USD hitting 1.35.

Comments

[k9s-4-k8:]

I suppose they got tired of so many Euros moving into treasuries over the last couple of months. The Euro was turning into toilet paper. I really don't know this is anything more than simple rhetoric that will be reversed next month.

2008 Dec 11 04:45 PM

[abcde_98:]

I don't think it is rhetoric, but a couple of the reasons Weber gives are silly
(1) economy expected to pick up next year, so if we reduce now, we will have to raise again (likely) promptly. Well ECB, get off your arses, it's not a vacation/old boys club to meet monthly having expensive dinners/drinks.
(2) we've never taken rates below 2% previously ....well, things change, we are in a unique economic situation, somewhat unprecedented (or at least something not seen for 75 years)
(3) not enough information is available .... decisions need to be made on imperfect, incomplete information ... by the time you wait for the information, things have already become worse... the ECB is very fortunate that the EU is not one country because there would surely be some sort of banding together by the citizens and taking their issues to a single governement
(4) avoiding negative real interest rates. is such situation expected to last for a long time or temporary? and what is so bad with such a situation, for a temprary period?

Likely it's ECB politics, seeing that the USD was more of the currency that investors ran to for a safe haven. Well, ECB, several of your member countries had complained about significantly lower export sales b/c of high Euro, and look at the auto and other industries in your countries. Perhaps the reason is with a weak Euro that their jobs/prestige/life status is diminished and even further perhaps the EU could break up some time down the road.... the economies of the member countries are quite divergent.

Maybe the EU needs to see more and more workers unemployed, or maybe cut the work week to 4 days or 30 hours, then the statistics will say there are fewer unemployed. There's only so long that the socialistic, very high taxation, ageing demographic countries can survive and create GDP growth.

For the EU to survive, it needs to bring in more countries with younger populations, good GDP growth to make up / provide for the older / mature economies.
hmmm, on that point, forget that alleged $50bn scam by Madoff, perhaps the EU is the worlds biggest scam!

2008 Dec 13 02:56 PM

[abcde_98:]

Follow up comment, with manufacturing sector in Euro-zone contracting, again, and more than expected.

Is the ECB still concerned about inflation? ECB is losing credibility. If there was another vehicle/large enough market to store value, then thew Euro would get hit quite hard by investors.

ECB needs modify its rules and stance on rates, and listen to sector / industry groups, rather than playing politics through interest rates.




On Dec 13 02:56 PM abcde_98 wrote:

> I don't think it is rhetoric, but a couple of the reasons Weber gives
> are silly
> (1) economy expected to pick up next year, so if we reduce now, we
> will have to raise again (likely) promptly. Well ECB, get off your
> arses, it's not a vacation/old boys club to meet monthly having expensive
> dinners/drinks.
> (2) we've never taken rates below 2% previously ....well, things
> change, we are in a unique economic situation, somewhat unprecedented
> (or at least something not seen for 75 years)
> (3) not enough information is available .... decisions need to be
> made on imperfect, incomplete information ... by the time you wait
> for the information, things have already become worse... the ECB
> is very fortunate that the EU is not one country because there would
> surely be some sort of banding together by the citizens and taking
> their issues to a single governement
> (4) avoiding negative real interest rates. is such situation expected
> to last for a long time or temporary? and what is so bad with such
> a situation, for a temprary period?
>
> Likely it's ECB politics, seeing that the USD was more of the currency
> that investors ran to for a safe haven. Well, ECB, several of your
> member countries had complained about significantly lower export
> sales b/c of high Euro, and look at the auto and other industries
> in your countries. Perhaps the reason is with a weak Euro that their
> jobs/prestige/life status is diminished and even further perhaps
> the EU could break up some time down the road.... the economies of
> the member countries are quite divergent.
>
> Maybe the EU needs to see more and more workers unemployed, or maybe
> cut the work week to 4 days or 30 hours, then the statistics will
> say there are fewer unemployed. There's only so long that the socialistic,
> very high taxation, ageing demographic countries can survive and
> create GDP growth.
>
> For the EU to survive, it needs to bring in more countries with younger
> populations, good GDP growth to make up / provide for the older /
> mature economies.
> hmmm, on that point, forget that alleged $50bn scam by Madoff, perhaps
> the EU is the worlds biggest scam!

Jan 02 08:35 AM