ECB President Trichet set off a rally in the EUR/USD on his comments following the ECB interest rate meeting. He said that the ECB Council is now focused on the upside risk to inflation and the statement did did not say that current interest rates are appropriate, a break from what we have heard recently.

This follows up from our post in anticipation of Trichet.

The use of the term strong vigilance is associated with near-term interest rate increases and Trichet was peppered with questions in regards to a possible move in interest rates at the next meeting, which he said was possible.

From the ECB Introductory Statement :

The economic analysis indicates that risks to the outlook for price developments are on the upside, while the cross-check with the monetary analysis indicates that the underlying pace of monetary expansion remains moderate. Recent economic data confirm that the underlying momentum of economic activity in the euro area remains positive; however, uncertainty remains elevated. The current very accommodative stance of monetary policy lends considerable support to economic activity. It is essential that the recent rise in inflation does not give rise to broad-based inflationary pressures over the medium term. Strong vigilance is warranted with a view to containing upside risks to price stability. Overall, the Governing Council remains prepared to act in a firm and timely manner to ensure that upside risks to price stability over the medium term do not materialise. The continued firm anchoring of inflation expectations is of the essence.

The news helped the EUR/USD move out of its overnight sideways action, reaching a high of 1.3973 in the hour during his conference. Overall, the ECB seems to have confirmed the market consensus that it would turn more hawkish and as long as the Fed stays put, we will have interest rate differential heading in favor of the Euro.

For a reaction to the EUR/USD, see today's Technical Analysis Story: EUR/USD Closing in on 1.3980 Target after ECB Meeting

We'll see if following this performance, the likelihood of an interest rate increase is moved up even sooner than it had been going into the meeting. Bloomberg quoted analysts as saying August was the consensus for a move. We'll see if we can have the market pricing in a rate hike even sooner.