Words can cost money. On Thursday, the euro dropped two cents against the US dollar, all for the lack of two little words on the lips of Jean-Claude Trichet.
Going into the European Central Bank’s monthly meeting, foreign exchange analysts suggested that a rise in its central policy rate next month was between 30 and 40 per cent priced in. Using the code he has developed, Mr Trichet could have all but promised a June rise with the words “strong vigilance”. But he opted only to say that the ECB would “closely monitor” inflation – which leaves the door open for a more gradual exit strategy; the next rise is highly unlikely before July.
The response showed that the market had in fact priced a June rate rise as a virtual certainty. The euro dropped almost 2 per cent against the dollar in minutes, while government bond yields for central eurozone economies all fell sharply.