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Friday, May 8, 2009

Is Trichet a day late and a Euro short?

The ECB announced another rate cut. This puts the Euro zone rate to 1%.

The ECB panel also, as the FT reports, flirted with the idea of cutting rates to zero. I think that was the right decision, but the rate cutting should have started much earlier.

Now, they are devaluing the currency, at a time when the Euro zone is still weak and still, with a US economy, by all accounts, about to rebound to modest levels by Q3 this year.

What will Trichet do when the Euro zone faces pressure from the US dollar?

While he ruled out any form of quantitative easing (QE), I feel that this is what will have to happen once pressure builds from the dollar--as well as from the Yen, as it tends to follow suit with the US dollar and trend with it.

I know this is a time when the Germans are kicking themselves in the tail feather, for having adopted the Euro. They could have very well have been on the influence of the US economic machine and had some independence.

This rate cut, coupled with a weak Euro zone, at a time when this could have been avoided with some positive steps late last year, their own country economy, will sour until at least 2010.

The weak Euro zone and currency, has put a damper on the entire European market.

Not good at all!
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