Forex Day?

Thursday, March 23, 2006

With little news in the way forex markets have been quiet in early trade. A barrage of top brass speakers from the ECB may change that later. 4 Eurozone central bank chiefs, ECB president Jean-Claude Trichet and hawkish ECB economist Otmar Issing are expected to climb to the speaker's desk later this day. See the International Economic Calendar in the sidebar for exact dates.
While the ballooning current account deficit appears to be the biggest threat for the greenback, inflation worries on both sides of the Atlantic may force the ECB to reduce its extremely accommodative policy stance later this year, assuming that oil prices above $60 per barrel are here to stay.

Euro/Dollar Chart

GRAPH: The US dollar has recovered from his lows but the time of strength has passed since last summer.
Higher rates in the Eurozone will lead to a further reduction of the spread between Euro and dollar investments, possibly pushing the dollar into a competition for fresh capital. But the ECB walks a fine line as Europe is accumulating a current account deficit too while the economy languishes in most member countries. Continued rate hikes could bring the Eurozone's economy to a screeching halt and endanger consumers who have to repay their real estate purchases.
Don't expect too many hawkish comments therefore as speakers will also be relieved to point to the recent downturn of oil prices and use this argument to push the unpleasant idea of the next rate hike into the near future.


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