As ECB President Jean-Claude Trichet announced the largest cut in the Eurozone’s 10-year history, he said that the region is bracing for negative growth next year.

“Global and euro-area demand are likely to be dampened for a protracted period of time,” Trichet said at a press conference in Brussels today, Bloomberg reported.

The ECB estimates average annual real gross domestic product (GDP) growth to be between 0.8% and 1.2% in 2008, between -1.0% and 0.0% in 2009 and between 0.5% and 1.5% in 2010.

The ECB’s rate reduction followed two other huge central bank cuts in Europe.

The Bank of England cut its rate by one percentage point to 2%, its lowest level since 1951. That cut followed its 1.5 percentage point cut to 3% less than a month ago. Sweden’s central bank also slashed a record 1.75 percentage points from its primary interest rate.

Meanwhile, France unveiled its own economic stimulus plan today – a $32.9 billion (26 billion euro) injection that will target infrastructure, support local authorities and help its own ailing auto industry. The goal is to increase its GDP by 0.6% next year and push its deficit to 3.9% of the GDP, Reuters reported.

Wrapping everything together, are the Eurozone’s latest economic statistics, also released today, that said that GDP shrank 0.2% in the second quarter, investment dropped 0.6% and household spending remained flat.

Holger Schmeiding, chief European economist at Bank of America in London, said Europe is facing a “very serious recession.”

“Despite a major monetary stimulus and some help from lower oil prices and a looser fiscal policy, we do not expect the economy to recover before late 2009,” Schmeiding told Bloomberg.

Outside the Eurozone, four other countries recently slashed their primary lending rate earlier this week.

• New Zealand reduced its interest rate by 1.5 percentage points to 5.0%, a five-year low.
• Indonesia made its first interest rate cut since December 2007, reducing its key interest rate by one-quarter of a percentage point to 9.25%, Reuters reported.
• The Bank of Thailand cut its main interest rate one percentage point to 2.75%, its biggest reduction in eight years and its first cut in 16 months.
• Australia also cut its lending rate by a full percentage point to 4.25%, a six-year low.

Source: Record Rate Cuts and Economic Props Light up Europe

In effect, these two Central Bank Masters are trying to literally persuade the markets into thinking their currencies are stronger than they are. It’s called jawboning.

And guess what. It’s actually working…at least for now.

First Ben Bernanke threw his hat into the ring last week, and pushed the dollar higher with his few inflation hawk sentiments. Then Trichet jumped in the ring, and wiped out the dollar’s gains, by “talking up” his beloved euro. Then Bernanke jumped back in, along with his buddy Treasury Secretary Paulson, to push the dollar back up.

This is getting ridiculous.

Once upon a time, currencies were based on more than just who was speaking at the podium. Better take refuge now, with the two currencies that traders rush to, when the markets are a bowl of confusion.

Until Next Weekend,
Kathlyn Von Rohr
Weekend A-Letter Editor

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Source: Talking the Dollar Higher 

The European Central Bank, at its meeting yesterday, decided to leave its key interest rate at 4%, as expected. However, it was the accompanying rhetoric that caused a stir.

“It is not excluded that, after having carefully examined the situation, that we could decide to move our rates a small amount in our next meeting in order to secure the solid anchoring of inflation expectations,” said ECB President Jean-Claude Trichet.

Trichet’s qualifier—“I don’t say it’s certain. I say it’s possible.”—sounded unconvincing to many.

“Trichet continues to sound the hawkish trumpets, revealing that some on the ECB board wanted to hike rates, and admits that while not certain, the ECB could raise rates next month. This is significantly more hawkish than any expected,” wrote Marc Chandler, of Brown Brothers Harriman.

The ECB’s also released revised staff projections for an average inflation of between 3.2% and 3.6% in 2008, with a midpoint of 3.4%. That’s dramatically higher than the March projections for a midpoint at 2.9%, and well above the ECB’s target of below 2%.

Source: But Dollar, Meanwhile, Hits the Skids – Hawkish ECB Comments Cited