Jun 16, 2023

The Federal Reserve rate hike pause has led to a huge one-day surge in the EURUSD.


EURUSD– Daily Chart

The EURUSD has resistance at the 1.1033 level, and it should head there in the coming days after a big one-day move on Thursday.

ECB Announces Final Rate Hike

The European Central Bank (ECB) announced what many think will be a final rate hike with a move to 3.5%. That finally closed the gap on the U.S. Federal Reserve, which paused rate hikes at the 5% level on Wednesday.

ECB policymakers have now raised rates at each of their last eight meetings, with the first coming in July 2022. The central bank was forced to abandon its negative rate policy to combat a surge in inflation.

Inflation in the eurozone peaked around 11% last year and has been steadily declining. Prices rose 6.1% over the previous year to May, lower than the 7% figure in April. Core inflation is still an issue in the eurozone and may lead to further rate hikes from the ECB.

“Inflation has been coming down but is projected to remain too high for too long,” the central bank said.

Before the Thursday announcement, analysts expected the 25 basis point increase to be the bank’s last, although many now see the potential for more.

“President Lagarde all but promised another hike next month. Our baseline forecast remains that interest rates will peak in July and stay there until the middle of next year but the chances of another hike at the following meeting in September have risen,” said Jack Allen-Reynolds, deputy chief economist at Capital Economics.

Growth forecasts for the eurozone were lowered to 0.9% this year and 1.5% next year. The eurozone has fallen into a winter recession last year, according to revised figures. Furth interest rates could pressure economies, with Germany entering a recession and low sentiment indicators for Europe’s new “problem child”.

For now, the market is focusing on the Fed pause and the ECB rate hike, and the EURUSD looks to be heading higher.

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