The European Central Bank kept interest rates unchanged at its meeting Thursday, with attention focused on Bank President Jean-Claude Trichet’s remarks on the strong euro after it hit a record high against the U.S. dollar.
As expected, the bank’s 18-member governing council left the key refinancing rate untouched at 2 percent, where it has been since June 2003.
Most economists expect the bank to wait well into 2005 before raising rates to ward off inflation as the European economy continues to grow.
That put the emphasis on what Trichet may say a news conference set for later Thursday. He has faced scrutiny for his views on the euro’s strength against the U.S. dollar and his outlook for economic growth. The euro hit a new high earlier Thursday at $1.3383.
The dollar’s weakness against the euro has Europeans worried it could stall Europe’s moderate economic recovery by making exports more expensive against foreign competition.
Trichet has called the euro’s steep climb “brutal” and “unwelcome.” But currency markets have only pushed the euro higher.
Some economists say market participants appear to be willing to test whether Trichet is ready to back up the words with action such as using bank reserves to buy dollars and prop up the U.S. currency, possibly in cooperation with the Bank of Japan.
Any such intervention would likely take place without the United States. While it is bad for Europe’s economy, the weak dollar is considered a boon for U.S. exporters and for the economy as a whole, giving U.S. President Bush little incentive to try to prop it up, although the administration still says it has a “strong dollar policy.”
The weak dollar’s consequences for Americans include more expensive European vacations and imported goods. It also makes life tougher for Americans living abroad, and the U.S. military announced this week that troops stationed in Europe would receive a 31 percent cost of living increase to help provide some relief.
