EUR/USD probes parity as ECB hikes by 75 basis points

Today’s ECB decision was eagerly anticipated by traders and investors alike. Until a few weeks ago, expectations were that the central bank would deliver another 50-basis point hike. But more recently those expectations were adjusted upwards as the inflation outlook deteriorated. The ECB made it clear that they were not going to let the prospect of a looming recession stand in the way of trying to control inflation with aggressive rate increases, or slow policy normalisation.

Lo and behold, today the ECB decided to hike rates by 75 basis points instead, which caused the euro and DAX to whipsaw in initial reaction. The ECB said inflation remains far too high and is likely to stay above target for an extended period, which means more hikes are on the way as it looks to further “dampen demand.”

The ECB also raised its inflation forecasts to 8.1% and 5.5% for 2022 and 2023 respectively, implying that monetary policy will get even tighter to help bring inflation back towards the 2% target. Today’s decision comes as inflation has raced to nearly double digits in the Eurozone. Headline CPI climbed to 9.1% Y/Y in August, from 8.9% the month before, raising fears that second-round effects from energy inflation are making their way through the economy.

During the ECB Press conference, Christine Lagarde spoke and some of the headlines are provided below:

*LAGARDE: ECB SEES GROWTH RISKS `PRIMARILY ON THE DOWNSIDE'

*LAGARDE: RISK TO INFLATION OUTLOOK PRIMARILY ON UPDSIDE

*LAGARDE: ECB UNANIMOUSLY DECIDED TO RAISE RATES TODAY

*LAGARDE: ECB ISN'T AT NEUTRAL RATE

Ahead of the ECB policy decision, the EUR/USD had bounced back to turn back positive on the week and rise above parity. But when the rate announcement was made, the initial response was a somewhat negative as the news was already priced in.

As traders, we must see further signs of stabilisation before turning positive on the single currency. This is because the trend is bearish and trends can remain in place for long periods of time. So far, there’s no evidence of a bottom. So, the most likely scenario is that the euro might head lower again.

If you are bullish, then then it is worth watching the EUR/USD to see how it fares by the close of play, when traders will have digested the ECB move, Lagarde’s press conference and Powell's speech, later. If we get a close well above parity, then this will provide the bulls with something to work with in the coming days. With rates being significantly oversold and dollar becoming a very crowded traded, the EUR/USD could certainly find relief.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.