The euro has been falling against the dollar and most major counterparts like the yen and Swiss franc in the European trading session as markets react to an article highlighting European Central Bank President Jean-Claude Trichet’s statement that the ECB is “reassessing inflation risks”.
Trichet’s comments in his speech on Monday to European parliamentarians in Brussels signalled that the bank will be taking more cautionary monetary policy measures due to the steep slowdown in growth in the euro zone, triggered by the European debt crisis. This shows a shift in the ECB inflation view from previously when Trichet had described inflation risks as on the “upside”.
Based on what Trichet said in his speech on Monday, the ECB is currently reviewing the risks to price stability, suggesting it could keep interest rates on hold well into next year as inflation pressures are downward.
In the last monetary policy meeting on August 4 Trichet mentioned the words “upside risks to price stability”. However, yesterday he avoided mentioning those words.
What he said was “Risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released early September.”
EURUSD has fallen over 95 pips from a European session high of 1.1880 down to 1.1784 by 07:45 GMT.
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