I really think inflation is a savior for ECB right now. As weird as it sounds - inflation is not always bad for economy. Mr. Bernanke wishes we got some more here in US. Why?? Inflation is going to elevate depressed home prices, therefore making consumers feel richer, and in turn improve consumer spending - which accounts for 70% of our GDP.
But lets go back to ECB - the European Central Bank. What do you think euro would be trading at if it was not for repeated calls for "strong vigilance" from Mr. Trichet? How about in low 1.teens I bet. It is inflation that keeps the interest rate money flows into euro versus the deflation-stricken US dollar. Our rates are simply too low for money to hang around. This makes euro stronger and saves it from "collapse" calls by the highly opinionated fear mongers.
Those who called for euro dollar at parity a year ago had a rude awakening when inflation has elevated above ECB's target. Let's not forget that ECB has only one mandate - inflation to be kept at target.
This morning Mr. Trichet once again repeated his "strong vigilance" phrase. Euro is trading at 1.4394 as I type - up 272 pips from Sunday night. Somehow we knew... :-)
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