In a Wall Street Journal interview, European Central Bank President Jean-Claude Trichet talked up the ECB's intention to fight inflation despite disparities in growth rates between central Europe and the peripheral states.
Trichet was adamant in his hawkish view on inflation and vowed to battle inflationary pressures. Last month the rate of inflation in the EU rose a surprising 2.2%. This was the first time in two years that the rate of inflation was greater than the ECB target inflation rate of 2.0%.
The ECB President stressed the ECB is determined to fight inflation attributed to rising commodity and food prices. Trichet also supported budgetary constraints and fiscal discipline in the EU nations, suggesting oversight for EU nations in keeping with enacted austerity measures. He does not see risks of an economic downturn due to sovereign budget cuts.
The euro received strong bids this past week, both against the dollar and versus the Swiss franc as interest rate expectations increased between Europe and the rest of the world. Further hawkish comments from the ECB should be supportive of the euro into the new week of trading.
While the event occurred over two years ago, traders should not forget the interest rate hike by the ECB in July of 2008, only a few months prior to the demise of Lehman Brothers. This should underpin Trichet's commitment to eliminating inflation in the EU. As such, traders should take note when the ECB President addresses the markets.