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Euro slips as gloomy ECB forecasts overshadow record rate hike

currency-newsEuro slips as gloomy ECB forecasts overshadow record rate hike
The euro came under pressure on Thursday following the European Central Bank’s (ECB) latest interest rate decision.

Meanwhile, trade in the pound is mixed this morning. GBP/EUR is flat at €1.1506 while GBP/USD has shot up to $1.1622. GBP/CAD is buoyed at C$1.5116, while GBP/AUD retreats to AU$1.6955 and GBP/NZD holds steady at NZ$1.8984.

Looking ahead, will a series of Federal Reserve speeches offer direction to the US dollar today?

What’s been happening?

The main focus on Thursday was the ECB’s latest interest rate decision. The initial response to which saw the euro strengthen as the bank announced a record increase of 75 basis points.

However the single currency was unable to sustain these gains for long, as EUR investors responded to the ECB’s accompanying macroeconomic projections, which saw the bank dramatically slash its 2023 growth forecast for the Eurozone from 2.1% to just 0.9%.

Meanwhile, after a slow start to the session, the US dollar rallied on the back of comments from Federal Reserve Chair Jerome Powell, in which he suggested ‘history cautions against prematurely loosening policy’. Signalling to investors the US central bank is unlikely to begin cutting rates again next year.

However the ‘greenback’ then met heavy selling pressure overnight as it was undermined by a bout of profit taking.

Finally, the pound traded with modest gains during yesterday’s session as Liz Truss unveiled her ‘energy price guarantee’, which will cap household energy bills at £2,500 for two years.

While the announcement helped to cool fears over inflation, a lack of clarity over how much the price freeze will cost limited Sterling’s upside potential.

What’s coming up?

Looking ahead, USD investors will look to a series of speeches by Fed policymakers for fresh impetus this afternoon.

A hawkish consensus could reinforce Fed rate hike expectations and help to revive the US dollar’s fortunes.

For EUR investors the focus will be on the outcome of the EU’s emergency energy meeting. EU energy minister are expected to discuss a raft of proposals to combat the looming energy price crisis.

A comprehensive plan to tackle the crisis could help to bolster the euro today.

In the meantime, trade in the pound appears subdued this morning as the UK mourns the death of Queen Elizabeth II.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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