A Forex View From Afar

ECB Press Conference Bullet Points

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• Inflation rates have risen significantly since the autumn
• inflation rates are expected to remain high for a rather protracted period of time, before gradually declining again
• upside risks to price stability prevail over the medium term
• economic fundamentals of the Euro-zone area are sound
• macroeconomic data continue to point to moderate but ongoing real GDP growth
• uncertainty resulting from the turmoil in financial markets remains unusually high and tensions still persist
• we emphasize that maintaining price stability in the medium term is our primary objective
• anchoring of medium to longer-term inflation expectations is of the highest priority
• current monetary policy stance will contribute to achieving our objective
• industrial production showed resilience
• economic sentiment generally continued to soften
• Euro-zone area economy has sound fundamentals and does not suffer from major imbalances
• domestic and foreign demand are expected to support ongoing real GDP growth
• growth in the world economy is expected to remain resilient, benefiting from strong growth in emerging economies
• strong growth in emerging economies should support euro area external demand
• employment and labor force participation have increased significantly and unemployment rates have fallen to levels not seen for 25 years
• The uncertainty surrounding the outlook for economic growth remains high
• Risk relate to the potential for the financial market turbulence to have a more negative impact on the real economy than previously anticipated.
• downside risks stem from the dampening impact on consumption and investment of further unanticipated increases in energy and food prices
• inflation from sharp increases in energy and food prices
• HICP inflation rate is likely to remain significantly above 2% in the coming months, moderating only gradually over the course of 2008
• protracted period of high annual rates of inflation
• risks to the outlook for inflation over the medium term remain clearly on the upside
• possibility of further rises in energy and food prices
• risk that price and wage-setting behavior could add to inflationary pressures
• Second-round effects stemming from the impact of higher energy and food prices on price and wage-setting behaviour must be avoided.
• monetary analysis confirms upside risks to price stability at medium to longer-term horizons
• M3 growth remained very vigorous at 10.3%
• M3 growth overstates the underlying pace of monetary expansion
• the underlying rate of money and credit growth remains strong
• The growth of household borrowing has moderated over recent months, reflecting the impact of higher short-term interest rates and cooling housing markets in several parts of the euro area
• For the time being, there is little evidence that the financial market turbulence seen since early August 2007 has strongly influenced the development of broad money and loans.
• macroeconomic data continue to point to moderate but ongoing real GDP growth
• uncertainty resulting from the turmoil in financial markets remains high
• strongly committed to preventing second-round effects and the materialization of upside risks to price stability over the medium term

Overall, Mr. Trichet had reiterated what the markets already knew, inflation pressures are strong, due to energy and food prices, moderate GDP growth put still (way) above the recessionary level, still a high level of uncertainty surrounding financial market, and strong demand from emerging countries.

What was new from the early statements was the fact that internal demand may be dampening.

In principal the inflation remarks are stronger, ruling out the possibility of a rate cut on the short to medium term, while some decrease in the economic sentiment is expected due to the high level of uncertainty

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