The financial world was waiting was waiting mainly for two decisions today. Both did not surprise as the European Central Bank (ECB) kept interest rates at 4.00% while the Bank of England at 5.25%. More important for the market was the press conference held by ECB’s president, Jean Claude Trichet. Trichet indicated, as he did in his previous announcements, that inflation is hiking pretty quickly in the Euro zone. He said that inflationary risk is “high”. As the main goal of the ECB, its president mentioned price stabilization. At the same time he informed that the ECB raised its inflation estimate to the 2.6% - 3.2% range.

The word were interpreted as “hawkish”. They raised speculation the bank might decide to hike interest rates in order to avoid losing control over inflation. Such expectations affected the EURUSD. Taking into consideration another interest rate cut in the U.S by 25 bp. to 2.50% on March the 18^th, the sellout of the “greenback” began. The EURUSD began its quest towards new records reaching 1.5378 as its historic all-time high. Investors might be asking: what is next? There is no clear answer to this question. Very probable seems the EURUSD attacking the 1.55 level. Friday’s U.S labor market report will be crucial. We will see in what condition is one of the most important segments of each economy – the labor market. The 1.55 level seems very probable even on Friday or at the beginning of next week. If bad news will keep flowing from the U.S, including yearly financial statements of American financial institutions, the EURUSD can reach even 1.60 in the second quarter of this year.

Adam Narczewski