As Investors Evaluate The Rate Forecast, The Euro And The Pound Fall
In response to the widely anticipated 50 basis point increase in interest rates by the European Central Bank and the Bank of England’s more dovish stance on inflation, the euro fell versus the dollar on Thursday.
According to Joe Manimbo, senior market analyst at Convera in Washington, “The ECB was more or less in line with expectations and the Bank of England sounded a bit more dovish, so I think that’s helping to halt the dollar’s slide.” You can tell that central bankers are feeling somewhat relieved that inflation is heading in the correct direction.
The euro sank by 0.70% to $1.0913 on the day, and the pound plummeted by 1.09% to $1.2240, its lowest level since January 17. To reach 101.71, the dollar increased 0.74% against a basket of currencies.
According to Mazen Issa, senior FX strategist at TD Securities in New York, some of the ECB’s remarks were also perceived as dovish, and it seems that “there is more of a global central bank shift going place.” The markets are essentially leading the central banks at the moment since central banks are in a data-dependent mode, which means they are no longer in charge.
On Wednesday, Federal Reserve Chair Jerome Powell was perceived as adopting a more dovish tone about future monetary policy, which caused the dollar index to drop to a nine-month low of 100.80. Markets responded by increasing their bets that the Fed will stop raising rates in the second half of the year, after an additional 25 basis point hike anticipated in March. Powell appeared to have fulfilled his goal yesterday, casting serious doubt on the continued viability of the December dot scheme, according to Issa.
Crown is near 14-year highs following a freeze on rates
In December, Fed officials predicted that they would raise interest rates by 5%. However, traders currently expect the benchmark rate to peak in June at 4.88% before dropping to 4.40% by December. The Friday employment report for January, which should indicate that companies added 185,000 positions in the month, will be this week’s key U.S. economic announcement.
The euro’s resilience helped boost the currencies of Central Europe on Thursday, with the Hungarian forint rising 1% to recover from recent losses and the Czech crown maintaining close to a 14-year high as the central bank indicated continued rate stability.
Indicating that rates would remain stable for longer, the U.S. held its main interest rate steady at a more than two-decade high of 7.00% on Thursday. Governor Ales Michl stated that rates would remain higher than what the market had anticipated. The European Central Bank increased interest rates by 50 basis points on Thursday, maintaining the strength of the euro versus the dollar as investors followed the U.S. Federal Reserve’s dovish lead on Wednesday.