Euro Steadies After Sizzling Week

07/18/2023

1 minute read

2023.07.18 06:15

MarketPulse

In the North American session, was unchanged at 1.1226 at writing. The US dollar was broadly lower against the majors last week and on Friday the euro hit its highest level since February 28th.

Will ECB continue hiking after July?

The ECB holds its next meeting on July 27th, a day after the Federal Reserve meeting. Similar to the Fed, a rate hike is widely expected in July but there is uncertainty about what happens after that.

Eurozone inflation is not expected to fall as quickly as expected, which would support the ECB continuing to deliver more rate hikes. The ECB has signaled that it will hike in July but hasn’t said much about September, other than the decision will be data-dependent.

ECB Governing Council member Boris Vujcic, head of the Croatian central bank, said that the September decision remains “very open”, a nod towards a divergence of opinion at the Bank. The hawkish members want to see a rate hike in September while the doves are worried about the damage to the fragile eurozone economy, which tipped into recession in the winter.

The US dollar’s downturn last week against the major currencies was intensified by the US inflation report, which was softer than expected. The headline and core rates both eased in June, raising market speculation that the Fed may finally wrap up its rate-tightening cycle after the July 26th meeting. The markets have priced in a July hike at 98% and a pause in September at 85%, according to the CME tool.

Once again, the money markets are marching to their own tune. Fed members have sounded hawkish, saying that inflation remains too high and Fed Chair Powell has hinted at further tightening after the July meeting.

EUR/USD Daily Chart