European Central Bank President Jean-Claude Trichet said on Thursday prospects for a stronger economic recovery and slowing inflation are good, which markets saw as a sign the chances of lower interest rates are receding.
Trichet said in a speech to a financial conference in Madrid that geopolitical and economic tensions are receding and that the recovery is very well underway.
"The prospect for 2004 of growth improving progressively up to potential and inflation being in line with price stability looks, obviously, good," he said.
The upbeat speech came a day after the US Federal Reserve took a tiny step toward raising interest rates for the first time since 2000 by dropping a five-month old pledge to keep them low "for a considerable period".
Euro zone interest rate futures tumbled on Thursday in the aftermath of the Fed's message and as Trichet's speech prompted a further rethink about the prospects for eurozone interest rates.
"Trichet is sounding slightly more upbeat, just as the Fed was slightly more hawkish last night, So this is a slow build," said Julian Callow, an economist at Barclays Capital in London.
"It rules out any rate cut, which some people had speculated (about) only a few weeks ago," he added.
Trichet made no mention of the strength of the euro in his prepared remarks to the conference. The single currency rose by 20 percent against the dollar last year and reached a record high just below $1.29 earlier this month.
Many economists and politicians have said the pain from the euro's strong rise, which hurts eurozone manufacturers' competitiveness, might be alleviated by lower borrowing costs.
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