Weekly Roundup: Euro knocked by dovish ECB rate hike

The euro initially rallied last week, with the single currency benefitting from its negative correlation with the US dollar as USD exchange rates plunged.

This helped the euro shrug off some underwhelming Eurozone PMIs, which were released at the start of the week.

A stronger-than-expected German business confidence reading also extended support to the single currency through the first half of the week.

However EUR exchange rates then faltered in the latter half of the week following the European Central Bank’s (ECB) latest interest rate decision.

While the bank raised rates by 75bps as expected, ECB President Christine Lagarde was non-committal regarding future hikes.  

Comments from ECB policymakers playing down another 75bps increase in December then piled more pressure on the euro at the end of the week.

A stronger-than-expected Eurozone inflation print is offering some support to the single currency at the start of this week.

However, any further gains may be capped amid signs the war in Ukraine may be escalating again.