Could the ECB force the Fed’s hand into joining the global inflation fight??
*CNNMoney, by Paul R. La Monica, July 1, 2008:
“The European Central Bank is expected to boost a key rate Thursday
in order to fight inflation. The move may cause a weaker dollar and
force the Fed's hand.
The fireworks may come a day early for the financial markets if the
European Central Bank, as expected, raises interest rates on Thursday.
If the ECB, Europe's counterpart to the Federal Reserve, hikes rates,
that could put even further pressure on the anemic dollar and send
commodity prices even higher.
The ECB will announce its decision on interest rates early the morning
of July 3 and will hold a press conference shortly thereafter to
discuss the decision.
Members of the ECB, most notably its president Jean-Claude Trichet,
have been talking loudly about inflation concerns in recent weeks and
have hinted that a rate hike will take place at Thursday's meeting.
If the ECB does raise rates by a quarter-of-a-percentage point, that
would leave its benchmark short-term rate at 4.25%. By way of
comparison, the Fed's federal funds rate is just 2%.
The disparity between interest rates in Europe and the U.S. is one key
reason why the dollar has weakened as much as it has in recent months.
The federal funds rate was at 5.25% last September before the Fed began
slashing interest rates. Meanwhile, the ECB has held pat. (The last
time ECB changed rates was with a quarter-point rate hike in June 2007)
Since the Fed started cutting rates, the dollar has fallen 12% against
the euro. And the dollar's slide has contributed to the surge in
commodity prices, particularly oil. Crude prices are up 74%.
Considering that the Fed left rates unchanged last week, a rate hike by
the ECB may only make matters worse for the dollar in the short-term
and lead to even higher oil prices. That would be more bad news for an
economy and stock market that's struggling to grapple with rising
energy prices.”
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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