Euro Regains Ground as ECB Signals Last Rate Hike
The euro has bounced back from multi-month lows against the US dollar as the European Central Bank (ECB) indicated that its latest interest rate increase will likely be the last. This news has caused the US dollar to retreat in early European trade.
At 03:20 ET (07:20 GMT), the Dollar Index, which measures the greenback against a basket of other currencies, was down 0.1% at 104.982. This comes after the dollar reached a six-month high of 105.43 in the previous session.
EUR/USD rose 0.2% to 1.0667, rebounding from a three-month low following the ECB’s policy-setting meeting. While the central bank raised its key interest rate by 25 basis points to a record high, it also signaled that this would likely be its final increase in its efforts to combat high inflation.
ECB President Christine Lagarde stated, With today’s decision, we have made sufficient contributions under current assessment to returning inflation to target in a timely manner. The central bank also revised its inflation forecasts, expecting it to decrease more slowly towards the 2% target over the next two years, while lowering its economic growth expectations.
Analysts at ING noted, A further weakening of the economy and a disinflationary trend will make it very hard to find arguments for additional rate hikes any time soon.
The US dollar initially surged overnight after retail sales in the US received a boost from higher gasoline prices, increasing 0.6% in August, surpassing the estimated 0.2% rise. Additionally, US producer prices rose more than expected in August.
While the Federal Reserve is expected to keep interest rates on hold during its upcoming meeting, the strength of the US economy may lead the central bank to reiterate its hawkish stance.
Elsewhere, USD/CNY fell 0.1% to 7.2704. The Chinese yuan was supported by better-than-expected industrial production and retail sales data for August, indicating resilience in the country’s economy.
USD/JPY rose 0.2% to 147.74 ahead of the Bank of Japan’s meeting next week, following signals from policymakers that an end to the negative interest rate regime is approaching.
GBP/USD increased by 0.2% to 1.2429, remaining above a three-month low. The Bank of England is set to meet next week after raising interest rates for the 14th consecutive time at its last meeting.
As the ECB signals its final rate hike, the euro has regained some strength against the US dollar. Whether this rebound will be sustained remains to be seen, as factors such as economic performance and inflation may impact future rate decisions. Investors will be closely watching central bank meetings, including the Federal Reserve and Bank of Japan, for further indications of monetary policy direction.
