The euro was down one cent versus the dollar and lower in the crosses at the conclusion of the ECB press conference. Despite Trichet’s signal of an impending rate increase in July the euro fell across the board in what looks like a “buy the rumor, sell the fact” type scenario.
To say that the euro sold off because the peripheral nations will struggle to grow in an environment of higher interest rates is to discount the price action of the last three weeks. The ECB expects euro zone growth to increase this year between 1.5% and 2.3%.
Looking at the price action of the EUR/USD the pair has risen 5% from its low in May to a high reached on Tuesday. While much of the bids for the euro came on the hopes of a solution to the European debt crisis, much of the buying is on the back of increasing interest rate expectations. As the July interest rate was predominantly priced by the market, the euro sold off following Trichet’s confirmation.
Read more forex trading news on our forex blog.