Forex: Trichet warns of second round inflation risks

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The ECB’s president, Jean-Claude Trichet, quoted that the European Central Bank will try and perform its best in order to reduce the effect that increasing energy and commodity prices could have by penetrating into other prices. He also stated that this has not occurred yet and that the inflation expectations are yet to reach a level that could be considered as alarming. As part of his interview to a Finish news agency he said that all sorts of risks can appear every now and there whose effects could be a of a second round and therefore extreme cautiousness and alertness is required to avoid having those risks materialising.

Earlier in the month the ECB raised its interest rates by 25 basis points to 1.25 percent, for the first time since July 2008 fearing inflation risks. The primary goal of the ECB is to maintain price stability and therefore the interest rate decisions are designed to accomplish this. Following the announcement the Euro made a sudden 13 pips rise against the USD as part of an illiquid trading but shortly after the Euro has been dropping in value and has lost a near 45 pips within the last hour following the announcement