Euro slides as ECB ends its rate hike cycle

Philip McHugh October 27th 2023 - 2 minute read

The euro retreated on Thursday after the European Central Bank (ECB) hit pause on its interest rate hiking cycle.

Meanwhile, the pound is muted this morning, with GBP/EUR subdued at €1.1477 and GBP/USD flat at $1.2123. GBP/CAD is also quiet at CA$1.6756, while GBP/AUD has slipped to AU$1.9123 and GBP/NZD has moved higher to NZ$2.0843.

Looking ahead, will signs of slowing US inflation pull the US dollar lower this afternoon?

What’s been happening?

The euro stumbled yesterday, in response to the European Central Bank’s latest interest rate decision.

As was widely expected, the ECB opted to leave interest rates on hold this month, ending its longest series of rate hikes in history and dragging EUR exchange rates lower.

Applying further pressure to the euro was ECB President Christine Lagarde’s accompanying speech, in which she warned the Eurozone economy ‘remains weak’.

The US dollar also weakened on Thursday, following the release of the latest US GDP data. The latest growth figures showed the US economy expanded by 4.9% in the third quarter, up from 2.1% in Q2 and smashing estimates for a 4.3% expansion.

The startlingly strong GDP figures proved enough to ease global recession fears, which triggered the pullback in USD.

At the same time, the pound’s attempts to appreciate were tempered yesterday, after the Confederation of British Industry’s latest distributive trades survey reported that UK retail sales volumes declined for a sixth consecutive month in October.

What’s coming up?

Looking ahead, the primary focus at the end of this week’s session will be the publication of the latest US core PCE price index.

As the Federal Reserve’s preferred indicator for inflation USD investors will be keeping a close eye on the data. Expect to see the US dollar falter if the index reports another deceleration of inflation in September as this if likely to further undermine Fed rate hike bets.

Meanwhile, the fallout from the ECB’s interest rate decision could leave the euro on the back foot today.

Finally, in the absence of any notable GBP data, the pound may struggle to find momentum at the end of this week, particularly amid ongoing concerns over the UK’s economic outlook.

Written by
Philip McHugh

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