It’s been 3 weeks since the European Central Bank President Jean-Claude Trichet claimed on January 13 that the central bank will do everything needed to keep inflation under control.

In January the region’s inflation rate reached the highest level in more than 2 years at 2.4% while the import-price inflation pace rose to 29-year maximum. Political turmoil in Egypt drives up oil prices while German workers demand wage increases.

Economists at Nomura International note that the ECB has to be extremely careful in the current situation trying to fine-tune the market’s expectations. There’s the risk that Trichet’s counter inflation comments convince investors the ECB will raise borrowing costs before Europe overcomes its debt crisis.

Economists surveyed by Bloomberg News forecast that the euro area’s central bank will keep its benchmark interest rate at 1%. In their view, the ECB will lift up rates in the fourth quarter, ahead of the Fed that may hike in the first quarter of 2012. The last time the ECB increased interest rates was in July 2008.

ECB rate decision will be announced today at 1:45 p.m.



Chart. H4 EUR/USD

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