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11/19/2005
On Friday, we finally heard the news which was consistent the the projected Euro Interest Rates. European Central Bank's President - Trichet finally announced that the ECB will probably raise interest rate on their next meeting (December 1St). The Euribor market priced in this rate hike a long time ago, so it should not be a surprise to anyone who keeps an eye on this market.
The expected interest rate differential is shown on the chart above. We will only see marginal increase in the interest rate advantage for the US Dollar over Euro and after expected FED rate hikes in May, the market expects a decline in the Interest Rate differential. The question is: What will happen to the Euro/Dollar Currency pair... Two extremes are possible: one is that the Dollar rally will continue and will accelerate into May and second extreme is that the market already discounted the news and the Dollar rally will fade soon. I tend to think that the first possibility is more likely for now.
This is not a trade recommendation and no one should treat it as such.
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Recommended Links on this topic:
Projected Future Eurodollar, Federal Fund, Libor, EuroYen, EuroSwiss, Euribor, Australian, Canadian and New Zealand Interest Rates |
