Euro retreats on dovish ECB forward guidance

The euro weakened on Thursday, after the European Central Bank (ECB) delivered a dovish interest rate hike.

Meanwhile, the pound is mostly rangebound so far this morning with GBP/EUR stable at €1.1663 and GBP/USD flat at $1.2789. GBP/CAD steady at CA$1.68929, while GBP/AUD and GBP/NZD soar to AU$1.9277 and NZ$2.0849, respectively.

Looking ahead, will a rebound in German GDP help to revive the euro today?

What’s been happening?

The euro stumbled yesterday, after the European Central Bank delivered its latest interest rate decision.

As was widely expected, the ECB hiked rates by 25bps. Raising interest rates in the Eurozone to a new record high.

But the euro fell as ECB President Christine Lagarde signalled the bank’s hiking cycle may be over, stating that she didn’t think the bank had any more ground to cover.

The pound also faced resistance yesterday after the Confederation of British Industry’s (CBI) distributive trades survey reported UK retail sales growth fell to its worst levels in over a year this month.

In contrast the US dollar rallied on Thursday, recouping a good portion of its losses following the Federal Reserve’s interest rate decision earlier in the week.

This upswing in the ‘greenback’ came on the back of some impressive US data, most notably the latest US GDP figures. Which reported US economic growth unexpectedly accelerated in the second quarter.

What’s coming up?

Turning to today’s session we are likely to see Germany’s latest GDP figures drive movement in the euro this morning.

The preliminary figures for the second quarter are expected to report Germany clawed its way out of a recession in the second quarter. Could this help to bolster the single currency?

EUR exchange rates may also be influenced by the publication of Germany’s consumer price index later this afternoon. Will another cooling of inflation in July further weaken ECB rate hike bets and pile pressure on the euro?

Also in the spotlight this afternoon will be the publication of the Fed’s preferred indicator for inflation, the US core PCE price index. Will another deceleration in underlying inflation reinforce speculation US interest rates have peaked and pull the US dollar lower?

Meanwhile, in the absence of any notable data, the pound may struggle to find momentum today.