Need To Know News

EUR/USD fell below 1.48 after the ECB’s Axel Weber expressed uncertainty that slower growth conditions will cool elevated inflation in the Eurozone.

Weber also provided the usual ho-hum ECB cadence, promising inflationary vigilance to ensure properly entrenched inflation expectations.

FX markets have become increasingly touchy to growth warnings from ECB officials, which may have been the case today as EUR extended declines after Weber said higher energy prices will reduce growth potential in the Eurozone.

On rates, Weber said current ECB rates are congruent with price stability — a counterintuitive assertion given recent Eurozone inflation data.

The ECB Q2 survey of professional forecasters showed inflation expectations for this year were revised up to 3.6% from 3.0%. Forecast for next year were revised up to 2.6% from 2.2%.

2010 is seen at 2.1% on average and longer term inflation forecast were revised up to 2.0% from 1.9%. Especially the latter will ring alarm bells at the ECB, even though 2.0% is still at the upper limit of the ECB’s definition of price stability. Forecasters have left their 2008 growth projection unchanged at 1.6%, while the 2009 forecast has been revised down to 1.3% from 1.6% previously.

2009 growth is seen at 1.8% and longer term trend growth was left unchanged at 2.1%.

ECB’s Weber says he does not expect inflation in the EZ to fall below the ECB’s target either this year or next.

ECB’s Weber forecasts German growth in 08 will come in at just under 2%.

ECB’s Weber says the financial market crisis could last far into next year. Weber added that Germany’s economy could recover next year with help from consumption. He also said the robust German labor market would help private consumption.  

ECB’s Weber says the financial market crisis could last far into next year.

ECB alloted 176.0 bln eur at an average rate of 4.40% at this week’s main refinancing operation.

The marginal rate dropped to 4.37% from 4.38% last week.

The benchmark allotment was 156 bln eur, so the central bank alloted 20bln eur more than the benchmark, compared to additional funds of just 3 bln eur last week.