As expected, the ECB left interest rates on hold at 4.0% following the latest council meeting. In his press conference after the decision, President Trichet was generally more hawkish than had been expected. He repeated the phrase that the ECB would act in a firm and timely manner and, although he expressed concerns that growth risks were to the downside, he also repeated that inflation risks were to the upside.

A very important factor was that Trichet stated that there had been some calls for rates to be increased at the meeting. With these comments, the ECB chief was looking to severely dampen market expectations that rates could be cut and this will provide some significant Euro support. The German factory orders data was also stronger than expected with a 4.0% monthly increase which will ease immediate fears over the industrial sector. There will be greater concerns over the outlook for consumer spending which will curb Euro buying support.