The European Central Bank raised its key interest rate by a quarter percent to 3.75% despite the fact inflation has slowed to 1.8%, under the ECB's 2.0% target. The hike was not a surprise however, as Bloomberg reports all 38 estimates it polled expected a hike and since most economists expect the ECB to hike to 4% by year's end. Market participants are said to be paying more attention to the press conference currently underway, looking for any signals and specific commentary about the market's recent volatility, from ECB President Jean-Claude Trichet. A senior European economist at Merrill Lynch (London) comments, " The key will be whether they continue to describe monetary policy as accommodative. That's a sign they've left the door open to another increase."
Sources: Bloomberg, MarketWatch
Commentary: What Good Is the Carry Trade? • Economists Expect Fed to Sit Tight on Rates Throughout 2007 • BoJ Hikes to 0.5%; To Maintain 'Gradualist' Strategy, Yen Falls
Stocks/ETFs to watch: Competitors: ETFs: SPDRs (SPY), iShares Lehman 1 - 3 Year Treasury Bond Fund (SHY), iShares Lehman 20+ Year Treasury Bond Fund (TLT), iShares Lehman 7 - 10 Year Treasury Bond Fund (IEF), PowerShares DB G10 Currency Harvest Fund (DBV), Euro Currency Trust (FXE)
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