This week was rather bland in its eventfulness. It was eventful because of the ECB governing council meeting and because of the meeting of the Council of the EU. It was bland because nothing special came of it. Despite all the commotion of the beginning of January, the month ended calmly and without much fuzz. Markets seemed calm as did the euro, which had picked up almost 8 cents to the dollar during January.
However, as the image above shows, the euro took a bit of a hit, apparently because markets wanted the ECB to raise interest rates. For the life of me I wouldn’t know why. Two months of higher inflation hardly calls for a hike interest rates. if by March things haven’t improved, then this should be dealt with. For the moment we can all pin this problem on higer energy prices, caused by the winter.
Stocks on the other hand seem to be doing well. A cheap euro is good for business.
Unfortunately, all of this adds to a false sense of security, as short sighted people start gaining an illusory sense of victory over the problems that still plague us. Our leaders will be tempted to become complacent and stop moving forward.
Sadly the markets will remind them of their miopy soon enough as Portugal and Spain will probably have to return to the markets by Wednesday, February 16.
Hopefully they are right and I’m wrong.