Monthly Wrap: EUR – Euro rallies as ECB pushes back on rate cut bets 

Philip McHugh January 10th 2024 - 2 minute read

Key takeaways: 

  • ECB tries to quash interest rate cut rumours 
  • Weaker US dollar also boosts the euro 
  • EUR monthly lows: £0.85, $1.07, AU$1.61, NZ$1.73, C$1.45 
  • EUR monthly highs: £0.87, $1.11, AU$1.64, NZ$1.77, C$1.47 

The euro rallied through December amid the European Central Bank’s (ECB) final interest rate decision of 2023. 

While the bank left rates unchanged, as expected, it pushed back strongly on speculation that rate cuts were pencilled in for early 2024. ECB President Christine Lagarde said the bank had not yet begun to discuss loosening monetary policy. 

Weaker Eurozone PMI readings trimmed the single currency’s gains, with an ongoing decline in business activity fuelling recession fears in the bloc. 

However, hawkish comments from several ECB officials kept the euro afloat. Multiple rate-setters argued that the bank needs to do more to bring inflation sustainably down to target. 

In addition, the euro’s strong negative correlation with a declining US dollar supported the single currency through to the end of December. 

USD regained ground through the first week of January, applying some pressure to EUR exchange rates. 

An uptick in the Eurozone’s December inflation figure helped stem the euro’s losses, keeping most of the currency’s gains over the past four weeks intact. Yet the euro found any upside potential limited as Eurozone data continued to paint a mixed picture of the bloc’s economy. 

Looking at the weeks ahead, the focus is on the ECB’s first policy meeting of 2024, towards the end of January. If the bank continues to challenge rate cut rumours, EUR could climb.  

Attention then shifts to the Eurozone GDP figures for the fourth quarter of 2023. If the bloc slipped into a technical recession at the end of last year, we could see the single currency crumble. 

January’s flash inflation rate for the Eurozone is then out on the first day of February. Rising inflation could boost EUR while a cooldown would likely dent the euro. 

Written by
Philip McHugh

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