There is little doubt in the markets that the European Central Bank will raise rates on Thursday, as ECB President Jean-Claude Trichet remains the most hawkish central banker around. Mr. Trichet sparked expectations of a rate increase following the ECB’s June meeting, as he said during his monthly press conference that the ECB would “not exclude the possibility of increasing rates by a small amount.” Since the ECB’s primary mandate is to maintain price stability, Mr. Trichet has all the reason in the world to consider increasing interest rates as Euro-zone CPI estimates rocketed to a fresh 16-year high of 4.0 percent in June, up from a confirmed rate of 3.7 percent in May.

This is substantially higher than the ECB’s 2.0 percent inflation target, and with CPI rising faster by the month, Mr. Trichet and other ECB Governing Council members are understandably concerned. However, traders will need to watch out for the other big show at 8:30 EDT, when Mr. Trichet will give his monthly press conference, as this tends to be the most market-moving part of the ECB’s rate decision. While maintaining price stability will remain high on Mr. Trichet’s list of priorities, his speech will likely signal that the rate hike was a one-and-done deal. Thus, traders should watch for comments that indicate that downside risks to growth may help to offset upside inflation risks, or notes that “the current monetary policy stance will contribute to achieving our objective” of price stability. However, there are other potential scenarios that could play out, which you can read about in our ECB Decision outlook.
Meanwhile, US non-farm payrolls and the unemployment rate will hit the wires at 8:30 EDT as well. NFPs are anticipated to reveal job losses in the US for the sixth consecutive month, while the unemployment rate is anticipated to ease back to 5.4 percent from 5.5 percent. However, US markets may only respond to the economic indicator that yields the greatest surprise factor. For more on the labor market data, check out Kathy Lien’s NFP outlook.

source: dailyfx.com