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02/10/2008 - ECB shifts bias to neutral, EUR to adjust

Posted by FOREX.com's Weekly Strategy in February 8th 2008  
* ECB shifts bias to neutral, EUR to adjust
* Global outlooks dims as US data softens further
* G7 meeting this weekend unlikely to note FX
* Key economic data and events for next week

For several months now I have been cautioning that ECB Pres. Trichet was blowing smoke when he threatened to keep raising interest rates to fight inflation, even as Eurozone growth was slowing. Trichet finally gave up the game on Thursday and effectively signaled that the ECB policy bias was now neutral. Market analysts, however, were quick to begin forecasting interest rate cuts as soon as April, with between 50-100 bps of easing seen in total for 2008. The Euro weakened across the board and seems likely to continue to soften in the weeks ahead. But I think the bulk of EUR weakness will be seen versus non-USD currencies, especially those with higher interest rates and better growth outlooks, primarily AUD and NZD, and to a lesser extent GBP.  Full text »

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Filed under: Weekly Strategy