Dove Versus Hawks - That's what this week's trading in the forex market will come down to. The Dove, represented by the US Federal Reserve, will stress that higher oil prices are a negative to growth and will likely signal continued support for the central bank's quantitative easing program. Federal Reserve Chairman Ben Bernanke testifies to Congress on Tuesday and Wednesday and he is expected to stick to his recent economic assessment that the recovery is strengthening but still not enough to bring about a significant improvement in the jobs market. The Hawks, represented by the rest of the world, will stress that higher oil prices will push inflation higher which will need to be tackled with increases in interest rates. European Central Bank President Jean-Claude Trichet may indicate this week that he is ready to increase borrowing costs. In fact, euro zone inflation data for January came in at 2.3% year-on-year, slightly softer than was expected but hovering at a 27-month high. The caused the Euro to move past 1.3840 level in early trading but the Euro has since come off as political elections in Ireland and Germany had a decisive no bail out undertone to them. The ECB, which has kept its key interest rate at 1% since May 2009, will hold its next policy meeting on March 3. Also representing the hawks, Riksbank Governor Stefan Ingves, who said that the central bank may boost interest rates at every meeting this year. In Canada, the CAD hit its highest level in three years after a report showed the nation’s economy grew at a better than expected 3.3% annual pace in Q4. Today's report has backed Bank of Canada Governor Mark Carney into a corner - growth is picking up but the currency's strength may stall growth. No change in monetary policy is expected at tomorrow’s meeting of the Bank of Canada, but expectations will change according to Carney's comments.
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