The U.S. Dollar gained slightly following comments from the European Central Bank president, Jean-Claude Trichet. Although investors expected the ECB to hold interest rates steady at 4.25%, the questions and answers session with the ECB president, which followed yesterday’s meeting, surprised few players in the currency market.
While Trichet tried to strike a balance between growth and inflation, his comments that economic growth in the second quarter of the Euro zone had been “substantially weaker” signaled a possible end to the possibility of an interest rate increase in the near term. Consequently, the Euro dropped to $1.5195 this morning in Tokyo. Inflation expectations will be the key in determining whether future interest rate moves will be up or down in the Euro zone.
The U.S. Federal Reserve also kept its interest rate steady at 2% but analysts believe that an interest rate hike is possible early next year. An increase in the value of the U.S. currency contributed to a fall in gold prices, because gold is used as a hedge when the U.S. currency depreciates. The price of gold was at $870.70, dropping from a high during the day of $883.80.