Will the European Central Bank be the first central bank to raise interest rates?

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Those who thought the Bank of England was going to be the first to raise interest rates were undone yesterday when European Central Bank President Trichet gave his normal, post meeting press conference. The ECB had already announced that interest rates would remain at 1.0% for another month which was no surprise. The press conference however gave the distinct impression interest rates were going up pretty soon. Trichet's use of the expression "strong vigilance" with regard to inflation confirmed the market's view that the ECB would lean towards raising rates before too long. Trichet even comment that a rate increase next month is "possible".

This news saw the Euro soar, despite the ECB not guaranteeing higher interest rates in April, it was as close to one as investors were ever going to get. The Euro gained a cent on Sterling and stayed up there.

On the foreign currency exchange markets the Euro had a good day but Sterling didn't. The only UK data was disappointing as Britain's services sector purchasing managers' index (PMI), which was expected to be slightly lower on the month, came out two points down at 52.6. The Eurozone's services PMI was down too, but by less than half a point at 56.8 while the US managed a fractional improvement to 59.7.

The UK housing market also took a hit yesterday as Hometrack reported monthly and annual falls of -0.2% and -2.7% and this morning Lloyds came out with declines of -0.9% and -2.8%. Unusually, Sterling doesn't seem to have reacted to either report.

The US employment report is the market focus today with investors asking how there will be more people in work and a higher unemployment rate. How is this possible? Well, as the economy picks up, people who had given up looking for jobs are now becoming more optimistic and have re-registered as jobseekers. 

The number that matters is the change in non-farm payrolls. The consensus among analysts is that payrolls will have risen by around 180,000 in February after the terrible 36,000 increase in January.