Yesterday’s Euro Trading Seesaw: ECB Announcement to Decide Future
The struggling Euro made a comeback yesterday, recording a positive daily close against both the dollar and the pound. This was due to a report indicating the European Central Bank’s announcement of a higher-than-expected inflation report on Thursday, which could justify another rate hike.
However, the Euro currency pair against the US dollar, EUR/USD, failed to overcome the resistance level of 1.0768 and quickly returned to its downward path, settling around the 1.0730 support while waiting for the European Central Bank’s announcement.
According to Reuters, the European Central Bank’s quarterly forecast is expected to show that inflation will remain above 3% in 2024. This is being seen as a “hard” development, as it implies that the European Central Bank may raise interest rates by 25 basis points while maintaining its commitment to more interest rates.
RBC Capital Markets’ currency market analyst, Alvin T. Tan, commented on the market’s response, saying, “The main news released overnight that the European Central Bank expects inflation in the Eurozone to remain above 3% next year helped the EUR/USD pair move surprisingly after the sales he witnessed during the day.”
However, the strategist at the Commonwealth Bank, Joseph Caporso, warns that the economic growth rating in the eurozone for 2023 and 2024 will also be downgraded.
Analysts from RBC Capital believe this news sets the stage for an exciting European Central Bank meeting today. Anders Ekloff, an analyst at Sweden Bank, suggests that the weakness of the Euro and the rise in oil prices may push the European Central Bank to raise the interest rate by 25 basis points, which will give the Euro a boost (at a price of 10 basis points) if the European Central Bank sticks to its bias emphasis. In the same regard, Dominic Boning, head of European foreign currency research at HSBC, says that the European Central Bank meeting today has the potential to create some volatility for the Euro.