As expected, the U.K. and the Trichet-led ECB held rate steady. The surprise was the South Korean Bank raising rates 25 basis points to 2.75 percent. Yet the markets, although purportedly surprised, did very little with the WON. More interesting for the currency markets was Trichet’s statement that the ECB was concerned about inflationary pressures within the EU. This on a day when Greek unemployment rose to more than 13 percent. Mr.Trichet, will you ever learn? The markets have just allowed the EU to phony up the Spanish and Portuguese DEBT auctions and before the DOLLAR can even try to rally, Trichet plays the INFLATION card. Really, with an overall European unemployment rate of 10 percent, do the ECB policy makers not believe in output gaps, and, of course, NAIRU?
It is time for Dr. Bernanke and Dr. Yellen to make a house call on their European brethren. The motto of the ECB as coined by its first president, Wim Duisenberg, is “WE HEAR BUT WE DO NOT LISTEN.” The markets listened and wound up bidding the EURO currency up against the DOLLAR and all other currencies. The market was very short EUROs and caught off guard by Trichet’s stridency on inflation. At the same time, the FED was further put on the defensive by the JOBLESS CLAIMS DATA. The markets had been anticipating a number around 400,000 but the actual number increased from last week’s, rising to 445,000. This puts a pause to the FED‘s positive economic outlook for the JOBS picture is just not improving enough to back the doves at the FED off the QE agenda.
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