ECB signals rate hike, euro falls

It looks like the ECB will be raising rates again soon, although the impending move didn't help the euro on Thursday. Bloomberg reports:

The European Central Bank signaled a July rate increase while damping investor expectations for further moves by reiterating a forecast that inflation will fall below its 2 percent limit next year.

The euro dropped more than a cent and German government bonds fell after ECB President Jean-Claude Trichet said the central bank hadn’t raised next year’s inflation forecast from 1.7 percent, fueling speculation it won’t increase rates as quickly as previously expected. At the same time, Trichet signaled the bank intends to lift its benchmark in July after keeping it at 1.25 percent today.

Latest data confirm “continued upward pressure on inflation” and “strong vigilance is warranted,” Trichet said. “It means that we are in a mode where there might be in the next meeting an increase of rates, but we are never pre- committed. We are not signaling any particular pace for the next decisions on our interest rates.”

The central bank increased its 2011 inflation forecast to 2.6 percent from the 2.3 percent, and left the forecast for next year at 1.7 percent. The 17-nation euro-area economy will grow 1.9 percent in 2011, up from the previous 1.7 percent projection. Growth will slow to 1.7 percent in 2012, the ECB said, reducing its forecast from 1.8 percent.

The Bank of England left interest rates unchanged after its monetary policy meeting on Thursday. Consumer demand in the UK has been weak recently, contributing to a narrower trade deficit in April, reports Reuters:

Britain's goods trade deficit with the rest of the world narrowed more than expected in April, although the improvement was driven by a sharp fall in demand for consumer goods, rather than any big improvement in exports.

The Office for National Statistics said that Britain's goods trade gap narrowed to 7.389 billion pounds in April from 7.708 billion in March, lower than analysts' forecasts for a deficit of 7.55 billion pounds...

The ONS said exports rose by 0.1 percent on the month, while imports fell 0.9 percent.

Bloomberg reports that the US trade deficit also narrowed in April.

Record exports and lower oil purchases unexpectedly helped narrow the U.S. trade deficit, easing concern that the world’s largest economy is faltering.

The gap shrank 6.7 percent to $43.7 billion in April, the lowest since December, Commerce Department figures showed today in Washington...

Exports increased 1.3 percent to $175.6 billion, boosted by sales of fuel oil, petroleum products and computers.

Imports dropped 0.4 percent to $219.2 billion from $220.2 billion in March. Demand for foreign-made automobiles and parts dropped by $2.82 billion to $19.1 billion.