Two of the Most Influential Central Banks Say: "Leave Well Enough Alone!"

What Happened:

Today, the European Central Bank (ECB) and the Bank of England (BOE) announced that they’re leaving well enough alone. The two major leaders of European finance have decided to leave their rates unchanged – at 4% and 5%.

What We Say:

These decisions didn’t really surprise anyone. Everyone and their brother in the currency markets expected the ECB to hold rates steady today. That’s because the ECB’s Jean-Claude Trichet has chattered almost non-stop about how they’re fighting inflation, at the expense of the slowing economy.

And the BOE has had good fortune in the past when they follow their little brother euro’s lead. So the BOE also decided to hold rates steady. Also, according to The Wall Street Journal, the BOE is still trying to balance the pressure of rising costs and economic growth.

So the euro and pound continue to enjoy a nice interest rate differential to the dollar, but at what cost in slower growth for the Eurozone? This points to a stronger U.S. dollar in the short run. The euro is getting battered for their stubborn stance. And the pound has already taken a beating. These days the dollar tends to react in the exact opposite direction of the euro, so a weak euro is some good news for the dollar.

However, as Chuck Butler said above, the long-term fundamentals for the dollar are less than appealing. So if you see the dollar rising in the next couple weeks, don’t sweat it. It’s just a small blip on the dollar radar screen. Nothing more.

(To find out more about how you can get involved in the the eternal bull market of currencies, click here.)