In the first measure is necessary to highlight the fundamental objective of the European Central Bank, in charge of regulating the purchasing power of the euro currency and in turn maintain price stability in the market for this community.
The upward trend especially at the price of food and raw materials in the international market, are among the factors pushing towards the imbalance of European monetary policy, which tends to maintain a moderate upward trend between that price it and the domestic inflation rate.
For example, the rate of inflation measured by the HICP (Harmonised Index of Consumer Prices), has risen from 3% 3% 3 in leading far this year and based on current oil prices and food, the rate of inflation in this case oscillates at a level above 2%.
The latest report of the annual review of 2007 published by the European Central Bank showed that economic activity in the euro area in the first half of this year, remained in a state of growth contrary to what happened in the second period where was a slight drop due to the effects of crises presented in this period of a year characterized by a constant market volatility, the increase mainly in oil prices and financial uncertainty.
This is where another function applies the role of the Central Bank, which is to generate policies that obstruct the widening gap between market prices and domestic interest rate.
What is the role of European interest rate in this process?, Well, European interest rates as functions as a brake on the risks that come with this trend of rising prices and trying to maintain a balance between the level of investment and the level of inflation as a result of accelerated growth in the area.
Consequently, the rate of interest or as many call it, "prime rate" determines the cost of credit in the euro area, credit which in turn enables enforcement of monetary policy, characterized by the construction of targets that control inflation over the medium term.
Accordingly, the danger of an inflationary crisis, there is a high probability that the rate fixed today on a 4% increase mainly by the three most crucial factors: rising oil prices, commodity prices (especially of staple foods, wheat , rice, etc) and development investment in the euro area.
This raises the question what is the relationship between explained above and the business of Forex? assuming it meets forecasts accelerated growth of investments in this region of Europe, the Central Bank credit guidelines established at a higher level of current and thus fulfill its main objective: to maintain the purchasing power of euro.
Consequently, the value of the euro in Foreign Exchange you will be probably less exposed to the fall in price in the market thus weakening the other pairs.
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