We have learned in the past to never bet against the European Central Bank. As a monetary policy authority that cherishes stability and despises volatility, the ECB never likes to catch the market by surprise.
Therefore as much as people may want the ECB to intervene to weaken the Euro or to lower interest rates, they should respect the fact that the ECB not only refuses to do so, but instead chooses to remind the markets that they are still very hawkish. They have no interest in saying one thing and doing another. This morning ECB member Garganas said that ECB policy remains “rather accommodative” because they feel that inflation will stay above 2 percent for the remainder of the year. They continue to warn that developments are monitored closely and they stand ready to act in a timely manner if needed. This morning’s economic data was also Euro positive with French and Italian industrial production both rising more than expected. Tomorrow we have the German wholesale price index as well as the ECB monthly bulletin for October which includes the EC’s GDP forecast for the next three quarters. The monthly bulletin will shed more light on the ECB’s current economic assessment.
Written by Kathy Lien, Chief Strategist for DailyFX.com