Speaking on CNBC Europe, ECB President Jean-Claude Trichet commented on concerns about the pace of rate cuts, likelihood of future cuts, and inflation risks. In an attempt to silence critics Trichet made clear his belief that the ECB, which began cutting rates in early October and has since cut the key rate by a cumulative 2.25%, has not been slow to act in dealing with economic and inflationary declines. The President went on to say that the rate, which now stands at 2%, can be cut further if conditions warrant it. Trichet remained optimistic that inflation expectations can be kept in line and that deflation remains is of no threat.
Trichet's optimism is not without backing, as leading indicators have come inline with estimates or better. On January 9th, monthly retail sales came in better than expected with a small 0.6% growth vs. a flat estimate. CPI released on the 15th came in line with analyst estimates with 1.8% YoY growth for the Core indicator. The ECB's most recent decision was for a 50 basis point cut to 2.0% from 2.5% on Thursday, January 15th. Should the rate cutting end or slow significantly, Euro appreciation is likely.