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Euro sheds weight on Thursday, sees broad market losses on ECB meeting points

by SuperiorInvest


  • Euro loses weight as ECB warns of risks to disinflation process.
  • European inflation could take until 2025 to reach 2%.
  • The ECB wants wage growth to be much slower before it moves on to further rate hikes.

The euro (EUR) fell against most of its major currencies on Thursday as euro investors rebalanced their exposures. The European Central Bank (ECB) continues to warn that market expectations for a rate cut have far outstripped what the ECB is willing to deliver.

Both ECB and the Federal Reserve (Fed) have made significant verbal efforts to dampen market hopes for an accelerated pace of rate cuts. Policymakers on both sides of the Atlantic caution that rate-cutting moves will be data-driven and much slower than what money markets are pricing in.

Daily roundup of market moves: Accounts of ECB monetary policy meeting reveal firmly dovish stance

  • The ECB’s monetary policy accounts reveal concerns that inflation will rise further in the near term.
  • The recent decline in inflation is encouraging, but ECB policymakers are not convinced that the progress is permanent, seeing the potential for continued inflationary risks.
  • The ECB expects to maintain restrictive policy “for some time”.
  • Market overpricing could derail the disinflation process, according to the ECB.
  • There is a broad adjustment in rate cut expectations as Fed officials continue to talk about hopes for a rate cut.
  • Fed’s Bostic: Needs more evidence that inflation is on a 2% trajectory, worst outcome would be a cut followed by a hike.
  • US economic data continues to beat market forecasts. Initial jobless claims for the week ended Jan. 12 slowed more than expected to 187,000, versus a forecast of 207,000, a further drop from 203,000.
  • On Thursday, ECB President Christine Lagarde attended the World Economic Forum in Davos, Switzerland, for the second of three appearances.
  • Lagarde has discussed little about monetary policy, but one more appearance is scheduled for Friday at 10:00 GMT.

Today’s price in euros

The table below shows today’s percentage change in the Euro (EUR) against the major listed currencies. The euro was strongest against the Swiss franc.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar 0.18% -0.18% 0.00% -0.24% 0.02% 0.06% 0.53%
euros -0.19% -0.36% -0.18% -0.43% -0.16% -0.10% 0.37%
GBP 0.16% 0.35% 0.17% -0.06% 0.20% 0.23% 0.71%
CAD 0.00% 0.19% -0.18% -0.23% 0.00% 0.07% 0.54%
AUD 0.24% 0.42% 0.05% 0.23% 0.26% 0.30% 0.78%
JPY 0.00% 0.19% -0.20% -0.01% -0.25% 0.06% 0.54%
NZD -0.05% 0.12% -0.23% -0.07% -0.30% -0.05% 0.48%
CHF -0.53% -0.36% -0.72% -0.53% -0.79% -0.52% -0.48%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Technical analysis: Euro falls, EUR/USD tries to find a base below 1.0900

The euro (EUR) is broadly lower on Thursday, down around a fifth of a percent against the US dollar (USD), Canadian dollar (CAD) and Japanese yen (JPY). The Swiss franc (CHF) was the lone gainer for the euro, which rose about a third of a percent on a day when both European currencies are jostling for last place.

The EUR/USD waffled below the 1.0900 handle this weekand the pair is unable to find a basis for a bullish recovery. Intraday action took a hit early on Thursday before being rejected back to near-term lows near 1.0850.

The Euro continues to be held back due to congestion American dollar on daily candlesticks. EUR/USD is trapped in an overload zone between the 50-day and 200-day simple moving averages (SMA) at 1.0900 and 1.0850, respectively.

The pair remains 4% higher from last October’s swing at 1.0450 and a technical bottom is parked near 1.0750 at December lows.

EUR/USD hourly chart

EUR/USD daily chart

Frequently asked questions of the ECB

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the Eurozone. The ECB sets interest rates and directs monetary policy for the region.
The ECB’s primary mandate is to maintain price stability, which means keeping inflation around 2%. Its primary tool to achieve this goal is raising or lowering interest rates. Relatively high interest rates will usually lead to a stronger euro and vice versa.
The Governing Council of the ECB takes decisions on monetary policy at meetings held eight times a year. The heads of the national banks of the eurozone and six permanent members, including ECB President Christine Lagarde, decide.

In extreme situations, the European Central Bank can enact a policy tool called quantitative easing. QE is the process by which the ECB prints euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually leads to a weaker euro.
QE is a last resort when simply cutting interest rates is unlikely to achieve the goal of price stability. The ECB used it during the Great Financial Crisis of 2009-11, in 2015 when inflation remained stubbornly low, and also during the covid pandemic.

Quantitative tightening (QT) is the opposite of QE. It is carried out after QE, when the economic recovery is underway and inflation starts to rise. While in QE the European Central Bank (ECB) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds and stops reinvesting the principal due in bonds it already holds. It is usually positive (or bullish) for the euro.

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