Trichet cut both his ’11 and ’12 GDP estimates as he emphasized multiple times that ‘downside risks’ to the Euro area economy have ‘intensified.’ On inflation, he said that the risks are no longer to the upside but are now more balanced. On the key issue of bank funding, Trichet said that ‘monetary liquidity continues to be ample.’ As long as the ECB continues to be the lender of last resort they certainly are ample but the question now is whether the collateral pledged for that funding continues to be worthy. In terms of the market reaction and the US$ rally vs the euro, Trichet didn’t announce any new liquidity facilities (some were hoping for a 12 month one) and while he fully backed off from further rate hikes, he didn’t lean on cutting them anytime soon as the ECB is not a fan of negative real interest rates.
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