The rate hike continues

Yesterday 2 February 2023, the European central bank (ECB) raised interest rates by 50 basis points.

The ECB said that it would stay the course in raising interest rates significantly at a steady pace, and new hikes were expected in the coming months.

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1. The euro fell 20 pips against the dollar

Immediately after the news of the European central bank raising interest rates by 50 basis points yesterday 2 February 2023, the euro fell 20 pips against the dollar. That was an important moment for the currency.

The euro’s slide was mainly due to the expectation that the Federal Reserve would continue raising its rates to combat inflation at close to 40-year highs. However, the euro’s value also suffered because of recession fears and structural headwinds in the European economy.

ECB President Christine Lagarde indicated that the Governing Council would evaluate the economic developments following the next rate hike in March. That helped the euro limit its losses but investors were not willing to commit to a steady recovery.

2. The euro remained flat waiting for Christine Lagarde’s press conference

Immediately after a slight decline, the Eurodollar remained flat awaiting Christine Lagarde’s speech.

Markets are wary of knowing what the ECB’s intentions are for the coming months, and fear a future eurozone recession.. It also announced it would raise them again in March and hinted that borrowing costs could need to rise further.

The ECB’s rate-setters are stepping up their efforts to choke off price spikes in the eurozone, where prices have slowed but still hurt people. But the central bank president, Christine Lagarde, warned that underlying inflation pressures remained “far too high” and warned it would take more than headline price drops to deliver on the ECB’s 2 per cent target.

She also questioned the effectiveness of ongoing fiscal support for consumers and businesses that governments had passed in order to shield them from higher natural gas prices. It was important to start rolling these measures back quickly in a coordinated way, she said.

Nevertheless, the eurozone economy showed a slight recovery and recent economic data showed a growth of 0.1% compared to the estimates which gave a contraction of -0.1%. The central bank’s latest interest rate hike was a necessary move, she said, and one that will “stay the course” in raising rates at a steady pace.

3. The euro regained ground against the dollar in morning session

This morning, February 3, 2023, the euro regained ground against the dollar, gaining around fifty pips, starting its climb from 1.0883, touching the ceiling of 1.0942. Positive eurozone data, pending NFP releases, prompted investors to buy into the major pair, before a sharp decline after positive NFP data and a declining US unemployment rate.

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