Euro maintains its positive tone after the ECB keeps rates on hold
- The Euro remains steady above 1.0900 following the ECB decision.
- The Dollar remains on the defensive after the Fed’s dovish pivot.
- Investors are waiting for President Lagarde's Press release.
The Euro (EUR) kept a positive tone on Thursday, extending gains beyond the 1.0900 mark, boosted by US Dollar’s (USD) after the ECB released its decision to leave interest rates unchanged at 4.5%.
The bank warned that inflation is likely to pick in the coming months while the economic projections suggest that the region's economy will accelerate from a 0.6% average in 2023 to 0.8% in 2024 and 1.5% in 2025.
On Wednesday, the Fed surprised investors with an unexpectedly dovish tone. The bank kept interest rates unchanged, as expected, but Fed Chair Jerome Powell suggested that interest rates have peaked with 17 of the 19 policymakers projecting rate cuts in 2024.
Risk appetite surged after the decision and the US Dollar was sold across the board. The Euro rallied more than 100 pips higher to fresh two-week highs right above 1.0900, where the pair has steadied ahead of the European Central Bank’s (ECB) decision due later on Thursday.
Daily digest market movers: The Euro holds its ground after the ECB decision
- The Euro maintains its bullish tone, with the US Dollar weighed by a dovish Fed.
- The European Central Bank has kept its benchmark interest rate unchanged at 4.5% as widely expected.
- The monetary policy statement appreciates upside risks for inflation in the near -term and sees economic growth accelerating in 2024 and 2025.
- US macroeconomic data surprises with US Retail sales growing against expectations and jobless claims falling faster than expected. This is capping Euro bulls.
- On Wednesday, The Federal Reserve flagged the end of rate hikes, and interest rate projections foresee 75 basis points in cuts next year.
- US Treasury yields plunged. The benchmark 10-year yield has dropped below 4.0% for the first time since July, adding negative pressure on the US Dollar.
- Futures markets are now pricing a 75% chance of a rate cut in March from about 40% before the Fed decision.
- Eurozone GDP contracted 0.1% in the third quarter, posing a challenge for ECB hawks.
- Eurozone Manufacturing and Services business activity remains well into contraction levels, suggesting a weak economic outlook.
- Consumer inflation has accelerated its downtrend in October, easing pressure on the ECB to keep hiking rates.
Technical Analysis: Euro holds gains above 1.0900 following ECB decision
EUR/USD maintains a near-term bullish tone after Wednesday’s sharp rally as the US Dollar licks its wounds. The US Dollar Index (DXY) seems unable to put a significant distance from the 102.50 support area.
A look at the 4-hour charts shows the pair standing comfortably above the main SMAs, with oscillators at overbought levels, and a resistance area at 1.0915 holding bulls ahead of the outcome of the ECB’s meeting.
If the bank manages to convince investors that rate cuts are off the table, we might see a further rally towards 1.0960, which closes the path to November’s peak at 1.1010.
Euro price today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.43% | -0.36% | -0.46% | -0.76% | -1.02% | -0.41% | -0.30% | |
| EUR | 0.44% | 0.07% | -0.02% | -0.34% | -0.59% | 0.01% | 0.13% | |
| GBP | 0.36% | -0.08% | -0.09% | -0.38% | -0.66% | -0.04% | 0.04% | |
| CAD | 0.45% | 0.01% | 0.08% | -0.33% | -0.60% | 0.01% | 0.14% | |
| AUD | 0.74% | 0.31% | 0.36% | 0.29% | -0.29% | 0.30% | 0.43% | |
| JPY | 1.02% | 0.57% | 0.66% | 0.55% | 0.25% | 0.64% | 0.68% | |
| NZD | 0.40% | -0.06% | 0.01% | -0.08% | -0.39% | -0.65% | 0.07% | |
| CHF | 0.30% | -0.12% | -0.04% | -0.12% | -0.43% | -0.68% | -0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
ECB FAQs
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
What is Quantitative Easing (QE) and how does it affect the Euro?
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 results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
What is Quantitative tightening (QT) and how does it affect the Euro?
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases 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 maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
