The Euro surged overnight following the release of a statement by the European Central Bank calling for a slowdown in future interest rate cuts. ECB members are split as to whether or not it should maintain its aggressive rate cutting. ECB President Trichet also voiced his concern about low interest rates. He is not comfortable with interest rates at current levels because of the fear of inflation. 

 

The ECB also told investors overnight that the Euro Zone is expected to begin a recovery during the second half of 2009. This is another reason why ECB members are reluctant to keep cutting rates. They feel that the drop in oil and food prices have taken enough pressure off the economy so that it will have enough power during the second half of 2009 to begin its recovery. The fear, however, is that if interest rates continue to fall at a rapid pace then inflation will be in a position to overtake any gains in the economy later on.

 

The EUR USD surged on this news late in the overnight session. With the ECB now expected to cut rates by only 25 basis points in January, traders who bought in anticipation of a 50 basis point cut are scrambling to add on to their positions. Traders are also going after higher yields this morning in anticipation of another rate cut by the Fed on December 16. In addition, the news that that U.S. automaker bailout plan may not be passed by the Senate is also causing the Dollar to lose its luster as a safe-haven investment. Look for higher prices throughout the day as the Euro builds on its uptrend.