Summary: The European Central Bank left its interest rate unchanged at 3.25%, but sent a hawkish signal that a quarter-point rate hike will come next month, as well a possibility for further hikes next year. ECB President Jean-Claude Trichet declined to give '07 guidance but his emphasis on "strong vigilance" gave market participants the impression that there will be more rate hikes. European stocks were sold as a result, and the euro gained against the dollar. Trichet commented that economic growth in the euro zone seems it will maintain its momentum in the second-half of this year, but probably won't match the "exceptional" growth rate in the first-half. The ECB has a goal of keeping inflation under 2%, although Trichet is doubtful for 2006 and '07, but says he is hopeful for '08. Next month, the ECB will publish updated forecasts for 2007 and its first for '08.
Related links: ECB: Monetary policy decisions press release and Jean-Claude Trichet: Introductory statement with Q&A • WSJ: European Bank Holds Key Rates But Hints at Rise • Fed Decision, Notable Changes, and Economist Reactions • Weak Core CPI Keeps Pressure on BoJ to Hold Rates • Which Currency ETF is the Best Hedge Against the Dollar? • Fed Officials Disagree, But Number of Hawks Growing
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