In the press conference for the ECB following the decision to leave rates at 1.25% President Trichet disappointed bullish investors on the euro as they were very hawkish and the bank dispersed expectations for a June hike.
Trichet said the ECB will monitor closely all developments with upside risks to inflation and refrained from using the phase strong vigilance that usually is a signal for a rate hike the following month. Trichet said the recent data confirm positive underlying momentum yet financial market volatility and further rise in commodity prices pose downside risks, while adding that the risk to the outlook is broadly balanced and euro region recovery is confirmed.
Inflation is likely to remain above 2.0% for some time and the ECB is looking at second round threats reminding that it will do all that is necessary to ensure price stability and to contain inflation threats over the medium term.
The decision to leave rates was unanimous and the governing council did not this month discuss the liquidity programs.
On fiscal policy, Trichet reiterated his call for the need to take the measures needed to meet the fiscal and budget targets. He welcomed Portugal's deal and said the loans contain important factors and will help restore confidence.
The euro dropped as Trichet spoke as investors saw that the bank will need more time to move again on rates. The euro decline more than 1.0% to the low of 1.4675 from 1.4830 areas before the decision.