ECB Hikes Rates While BoE Holds

As it was widely expected, the European Central Bank raised interest rates this morning by 0.25% to 1.25%, while the Bank of England held it unchanged at 0.5%. The ECB decision has been expected for over a month now with different monetary officials repeatedly reminding and reassuring markets about their intention to end the emergency measures and gradually turning to stabilizing and eventual

. The decision by the BoE also was in line with the expectations, although the recent jump in inflation, which shot up to 4.4% last month, had triggered some speculations that the British monetary authorities would start hinting about rate hikes sooner rather than later. However, most of the officials attribute the higher inflation to high food and energy prices, which they consider temporary, therefore are not rushing into raising rates while unemployment is still high and economy recovery is weak at best. After the decision, the Euro (EUR) has moved a little higher, though in a volatile fashion, against the US Dollar as it was well priced in and the EUR/USD is looking for a direction as markets are waiting for the press conference of the ECB President Jean-Claude Trichet. The currency pair is currently trading between 1.4260s and 1.4320s. The British Pound (GBP), meanwhile, sold of initially, as the GBP/USD fell from 1.6340s to 1.63 and the EUR/GBP rallied from 0.8720s to 0.8777.