ECB Rate Hike Vs EUR/USD.
London, Thursday, 16 March 2023
How Does ECB Interest Rates Decisions Affect EUR
Usually, it is favourable or bullish for the EUR if the ECB raises interest rates and expresses concern about the economy's potential for inflation. Similar to this, it is considered negative or pessimistic if the ECB maintains the current interest rate or lowers it while having a dovish outlook on the European economy.
What is to be Expected?
This Thursday, March 16, at 13:15 GMT, the European Central Bank (ECB) is set to make its monetary policy announcement. At 13:45 GMT, a press conference will be held to discuss the decision. After two mid-sized US banks, Silicon Valley Bank and Signature Bank, failed last week, investors started to question whether the ECB would honour its promise and deliver another significant rate increase. Despite this, reports on Wednesday suggested that ECB officials continue to favour a massive 50 bps lift-off. This supports the likelihood of an aggressive hike due to high inflation, along with a favourable development in the Credit Suisse saga.
In addition, investors will closely examine the monetary policy statement that goes along with it and the remarks made by ECB President Christine Lagarde for any additional hints about the trajectory of future rate hikes.
EUR/USD
The EUR/USD pair trades positively above the 1.0600 level as we approach the key central bank event risk, with worries about a full-blown European financial crisis abating and a slight US Dollar decline. Though ideally a hawkish 50 bps rate hike should be good for the common currency, it could increase contagion fears and fuel speculation for much stronger or earlier ECB rate cuts, which should in turn draw new sellers to the major.
(Written by: The Decision Maker - Finance editors. Jonathan Davies contributed to this article)