EUR rallies on hawkish Trichet, traders eye retail sales & US consumer data
March 3rd - As has been widely expected, the ECB added 25 basis points to interest rates last night but it was the subsequent – and rather hawkish – comments of ECB President Trichet that delivered a degree of momentum into currency markets, pushing EUR USD past the psychologically important 1.20 level. With news that further rate hikes will be in reaction to economic data – the same call we saw from the Fed at their last meeting – there’s a good chance that volatility could now start to increase for the Euro. Eurozone retail sales figures for January are due to be released in the next couple of hours and after yesterday’s upbeat numbers from Germany, any suggestion that these levels of economic expansion are being seen across the board will likely lend further support to the common currency. As we approach the weekend break, attention is likely to focus on the Michigan sentiment figures as with the greenback also reacting to essentially every economic announcement (as traders try to assess the next move of the FOMC) an upbeat reading here could well move opinion back towards seeing a quarter point added to US rates later in the month too. Any such news may serve to start eroding recent Euro gains, but regardless of the short term direction for currencies, there’s a good chance the EUR USD relationship could start to become more turbulent in the weeks ahead.
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