While central banks in the U.S., Japan, U.K., Switzerland and Brazil, amongst others, may be looking for excuses to print more money, the European Central Bank (ECB) is reinforcing its reputation as an anchor of stability. The most dovish comment from ECB head Trichet at today's monthly press conference was to point out that risks to the economic outlook are slightly tilted to the downside. That's a far cry from the Federal Reserve's (Fed's) bizarre media campaign to prepare the public for another round of quantitative easing, colloqually known as "QE2."

In recent months, Trichet seems to have become increasingly confident. On the thorny issues of competitive currency devaluations (currency wars), Trichet repeated his comments that excess currency moves are undesirable, emphasizing that currencies should reflect fundamentals "more than ever." Beyond that, he reiterated that a strong dollar is in the interest of the U.S. and encouraged U.S. policy makers to state this point. In our assessment, a strong U.S. dollar policy should not only be one in words, but also in action. However, it appears that a weak U.S. dollar has increasingly become a policy tool for both the Treasury and the Federal Reserve.

In recent months, the perception of the ECB has moved from being written off as a fundamentally flawed institution bound to fail, to a responsible central bank with a steady hand pursuing its mandate. In contrast, the U.S. Fed, Bank of England, Swiss National Bank, Bank of Japan and central bank of Brazil, to varying degrees, may be struggling to retain their credibility to pursue sound monetary policies.