Why the ECB is Still Hawkish

Daily Forex Fundamentals | Written by Kathy Lien | Sep 04 08 13:39 GMT |

ECB President Trichet's lack of commitment towards future monetary policy has led to little volatility in the Euro. After leaving interest rates unchanged at 4.25 percent, Trichet explicitly said that he has "no bias." However based upon the number of times he used the words "price stability in his Introductory Statement, he is still hawkish. Compared to last month's statement, Trichet used price stability two more times this month. Although he acknowledged that growth is slowing, he reminded Euro traders that inflation is still their top priority. We shouldn't forget that they only have one needle in their compass and that is delivering price stability. Oil prices have fallen significantly since August but Trichet is very adamant about inflationary pressures because of wage negotiations. The ECB's greatest fears is that unions in Germany would use inflationary pressures as an excuse to hike wages. This a problem that separates the Eurozone from the US. Wages in the US have been steadily declining on an annualized basis. There is still more trouble for the Eurozone economy as factory orders dropped for the eighth month in a row but the hawkish tone of ECB President Trichet should lead to a further recovery in the Euro especially as US non-farm payrolls face the risk of falling by -100k. Kathy Lien http://www.kathylien.com