The EURUSD currency pair was trading down over 57 pips following the European Central Bank’s (ECB) latest monetary policy decision, raising interest rates by 0.25% to 4.25%. The currency pair was headed higher earlier as the US dollar weakened before falling heavily on the ECB rate decision.
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Investors reacted negatively to the rate hike as the dollar gained against the euro, given that markets interpreted the ECB’s rate decision as a bit dovish. At the time of writing, ECB President Christine Lagarde was making her speech and insisting that the central bank will not cut rates soon.
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The ECB President declined to say whether the central bank would be hiking or holding rates stable in future, insisting that the bank would remain data dependent in its future decisions. The lack of a definite answer on where a rate hike would occur at the ECB’s September
Lagarde reiterated her commitment and that of the entire Governing Council to break the back of inflation and bring it back to its target of 2%. The ECB President was firm in her words, insisting that the ECB will continue monitoring the relevant inflation data in the months leading up to its September meeting.
She also reminded reporters that the ECB’s mandate is to set monetary policy and keep inflation in check. The ECB does not have the dual mandate of ensuring that the employment levels are at a certain level, unlike the Fed, which has a dual mandate.
The euro’s weakness following the ECB decision was also attributed to investors' conviction that the Fed was more likely to hike rates at its next meeting than the euro, which fueled the US dollar’s rally against the single currency.
The currency pair kept falling as the ECB President fielded questions from journalists about various aspects of the Eurozone economy. Her insistence that rate hikes were the most appropriate tool to bring inflation down to target drove the pair lower.
However, she admitted the real impact of interest rates on the economy, including the lower availability of lending, lower demand for housing and lower lending in general. The currency pair was headed lower at publishing.
*This is not investment advice.
The EURUSD price chart.
The EURUSD currency pair was trading down 57.4 pips (0.52%) as the US dollar gained against the euro.
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