There was no change to be mentioned on the Euro exchange rates after the ECB waited tightening actions as it was very widely expected since the ECB president Mr. Trichet has said that it is strong vigilance warranted to watch the prices which is that the ECB is closely monitoring inflation referring to that the decision was unanimously and it is not an action of a series to be taken and it is left to the developments of the inflation which is still heading up as what has been seen in the flash figure of Mar EU CPI which has risen to 2.6% from 2.4% in February yearly and he has confirmed also the encouraging of Portugal to take a share of the aid of the European bailing out plan and he has stressed that the decision is to anchor the prices rising and to restore prices stability over the medium term for the majority of the 331 millions of the Euro...

area not in the benefit of any country but the others stressing on that it is necessary to avoid a second round effect of inflation by avoiding the waves rising pressure and the need of taking the financial for reducing the deficit of the debt ailing economies in the Euro area. The single currency movement was contained recently by the market waiting for this ECB action to hike the interest rate for containing the prices which can underpin the single currency and in the same time, the negative effect of this tightening action which can also put more weights on the debt ailing countries in the Euro area as it should increase the cost of repaying their debts driving up the yields of their new issuance too which can weakening their creditability further weighing negatively on the Euro and its backed securities.

The single currency is trading now above 1.4347 which has been reached earlier this week as the pressure on the greenback has continued with the market sentiment impacted by the Fed's believing that the underling inflation over the medium term is expected to be stable despite the rising of the oil and commodities prices which can be temporary suggesting that there can be further period of keeping its easing policy undermining the greenback having more rooms for prices to grow up with no serious worries from the Fed which can underpin the gold to make new highs too as a hedge against inflation.

The sterling could come also up versus the greenback after it had been under pressure following the MPC decisions of keeping the interest rate unchanged again at .5% and the 200b Stg buying assets plan unchanged as some investors were expecting a tightening action for containing the prices rising after UK CPI has reached 4.4% in February with the current high commodities and energy prices but it looks that the stagflation pressure is still containing most of the MPC members as taking a tightening action can cause a negative effect of the struggling economic growth of UK which has shrunk by .5% in the last quarter of 2011 quarterly while taking another step of easing by widening the buying assets plan further can cause further rising of the prices can even cause a reversal indirect impact by dampening the demand at the current high commodities and energy prices which actually have hurt the manufacturing performance in UK as we have seen lately the release of UK manufacturing productions of March which have come unchanged from February while the market was waiting for increasing by .5% from .9% in February and also the industrial productions of March have come weaker than expected easing back by 1.2% while the market was waiting for increasing by .4% from .3% in February and these weak data come after the recent declining of UK PMI manufacturing index which has fallen in March to 57.1 from 61.5 in February while the market was waiting for 60.9 which shows that there can be harder times in the case of further rising of the commodities and energy prices.

 

Kind Regards

FX Market Strategist

Walid Salah El Din

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