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Euro spikes on ECB rate hike bets

currency-newsEuro spikes on ECB rate hike bets
The euro shot higher on Thursday, rising in the wake of the European Central Bank’s (ECB) latest interest rate decision.

Meanwhile, trade in the pound is a little mixed so far this morning with GBP/EUR slipping to €1.1862 and GBP/USD subdued at $1.3580. GBP/CAD and GBP/NZD are holding steady at C$1.7243 NZ$2.0427, respectively, while GBP/AUD climbs to AU$1.9105.

Looking ahead, will another lacklustre US payroll print exert some pressure on the US dollar this afternoon?

What’s been happening?

The euro rocketed higher yesterday, as the ECB delivered its first interest rate decision of the year.

While the ECB left its monetary policy untouched, the euro soared following President Christine Lagarde’s press conference, in which she refused to rule out the possibility of a 2022 rate hike.

At the same time, the Bank of England also concluded its latest policy meeting on Thursday, with the announcement of an immediate rate hike from 0.25% to 0.5%.

The pound initially spiked in the wake of the BoE rate hike announcement, with the GBP/EUR briefly being propelled to a new 23-month high after four members of the monetary policy committee voted for an immediate hike of 50 basis points, rather than the 25 priced in by markets.

However, Sterling quickly parted with the majority of these gains after BoE Governor, Andrew Bailey stated that market should not ‘assume that rates are now on an inevitable long march upwards’.

The US dollar, meanwhile, struggled to attract support during yesterday’s European session after the latest ISM non-manufacturing PMI reported activity in the US service sector fell to an 11-month low in January.

What’s coming up?

Centre stage today will undoubtedly be the latest US non-farm payroll print.

Coming off the back of a huge miss in the ADP employment report earlier in the week, USD investors are bracing for another disappointment with January’s payroll figures, which were already forecast to be fairly lacklustre.

Expect the US dollar to end the week on a sour note if payrolls come up short as this might dampen expectations for Federal Reserve rate hikes this year.

In the meantime, the publication of Germany’s latest factory orders release earlier this morning is likely to extend the euro’s gains after reporting order growth was more robust than expected in December.

Finally, in the absence of any notable GBP data releases, the pound may be driven by political uncertainty as pressure on Boris Johnson continues to build, following the resignation of four senior Downing Street aides.
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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