Forex News – ECB holds rate at 1.25 percent

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As the markets expected, the European Central Bank kept its main refinancing rate unchanged at 1.25 percent , the marginal lending rate at 2 percent also unchanged as well as the same deposit rate at 0.5 percent.

There were no drastic movements in the Euro as the markets had already factored in that rates will not be raised. German bund futures also hardly moved.

What will have more impact is the speech by ECB Chairman Jean Claude Trichet to be held at 12:30GMT. The focus will be on any key words he might say that will give indication of a upcoming rate hike in the next ECB meeting in July. Words like “strong vigilance” are usually used.

At the moment, the bias is towards a hawkish tone.

Traders have already priced in a 0.25 percent raise for next month. Even with a tightening bias, the market does not anticipate the ECB to take steps to reduce liquidity assistance to the peripheral banking systems.

Upon announcement of the rates, EURUSD fell slightly to 1.4614 from 1.4619. EURGBP 0.8897 from 0.8899.