Markets oscillate between ECB threats and Libyan hopes

Markets and the single currency reacted strongly yesterday after the European Central Bank hinted at raising interest rates as early as April.

The euro spiked sharply as ECB president Jean-Claude Trichet indicated the euro’s monetary guardian was likely to take a more aggressive stance on inflation than the Bank of England and US Federal Reserve, the FT reports. But Trichet said if inflation risks are confirmed interest rates may increase by only a quarter percentage point, starting from the record low of 1%. Currency markets reacted strongly, with the euro rising to 1.3937 against the dollar, up 0.5%, and to 0.8563 against the pound, a 0.83% jump. German two-year bond yields jumped a quarter of a percentage point to 1.77%. ...