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Reply #38: No "Surprise" To Us! ....Today's Pfenning [View All]

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54anickel Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Aug-04-06 10:46 AM
Response to Reply #11
38. No "Surprise" To Us! ....Today's Pfenning


Well... The Bank of England (BOE) and the European Central Bank (ECB) both did as I thought they would yesterday and raised rates 25 BPS respectively. As I was signing off yesterday, the BOE had wet their powder, and the pound sterling was soaring... So, let's talk about that rate hike first.

The headlines read.... "The Bank of England Surprises The Markets With A Rate Hike" Surprised? Well... I guess anyone that doesn't read the Pfennig might have been "surprised"... We certainly were not, as I had chronicled the sizzling growth, and inflation pressures for the past few months... Anyway... The pound sterling continued its flight to higher ground all day after the announcement, and the statement afterward which left the door open to further hikes.

Pound sterling also got a boost from a story in the U.K. papers yesterday that the Bank of Italy had cut the U.S. dollar portion of its reserves by 21% while increasing its pound sterling portion from 0% to 24%. There were no actual hard numbers discussed... But one would have to figure that we're talking about something that's larger than a breadbox! Pound sterling seems to be stealing the spotlight from the other European currencies right now... Pretty interesting, eh?

Later in the morning, yesterday, the ECB walked the walk, after talking the talk all month about higher interest rates. The euro received little support from the announcement, as I said yesterday that I had thought the rate hike had already been priced into the euro's value. I was, and the markets were, concerned about ECB President Trichet's press conference afterward... Would he back off his mega-hawk stance, or remain dedicated to fighting crime, and seek truth, justice and the American way..... Wait, he's no Superman! But seriously... What would he say?

Well... Grasshopper... Trichet remained a central banker that the inflation hawks can be proud of! How about these two comments from Trichet... "Monetary policy remains accommodative". And... "Progressive withdrawal of accommodation warranted" Ok... For those of you new to Central Bank parlance... Basically Trichet said that rates were still accommodating, which means low... And that, and I loved this statement... "progressive withdrawal of accommodation warranted"... Which means, he feels that he will continue to remove the low rates, and do so with a 50 BPS hike in his back pocket to pull out anytime he believes it necessary to do so.... There! Hope that helps!

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