On Thursday the euro surged (nearing in on $1.40) thanks to some hawkish comments from Jean-Claude Trichet, who suggested a rate hike could come as soon as next month!Don’t buy it. BofA FX strategist Athanasios Vamvakidis lays out three reasons to be sceptical.
The ECB is likely to wait for the dust to settle in the periphery, particularly if
Portugal asks for official financing, Ireland insists on haircuts for senior bank
debt holders, and the March Eurogroup meetings disappoint markets.
Despite statements to the contrary, the ECB cannot ignore a deterioration of
the periphery crisis, because of contagion risks.
The ECB may also wait for the recent instability in the Middle East to play out
before aggressive tightening.
Beyond that, if a hike were to exacerbate the sovereign debt crisis, it could easily make the euro weaker.