ECB President Lagarde surprised markets today by seemingly refusing to rule out a Eurozone rate hike during 2022, boosting the euro against almost all other currencies.
ECB Main Refinancing Rate and Monetary Policy Statement
Today saw the release of the European Central Bank’s main refinancing rate and monetary policy statement. As had been widely expected, the main refinancing rate (the interest rate) was left at 0%, while the wording of its monetary policy statement was barely changed. The surprises which moved the market in the euro came half an hour later during the usual press conference and written statement chaired by ECB President Cristine Lagarde. During the conference, the following key points were revealed:
- The ECB’s governing council was worried about “rushing into decisions” and voiced a desire to look at the latest data closely next month and come to data-driven decisions.
- President Lagarde stated that all members of the governing council are concerned about high inflation data. Lagarde went on to say that she sees March and June as especially crucial months for longer-term inflationary prospects.
- The big surprise: when Lagarde was directly asked whether a rate hike was unlikely to happen over the course of 2022, she dodged answering the question.
Markets now suddenly see an open prospect of a formerly unexpected rate hike in the coming months, seemingly caused by the governing council getting increasingly spooked by inflationary pressures, which are not proving to be “transient” in the USA, and maybe this is become more the case in the Eurozone too.
How Did Markets React?
In the first hour after the press conference began, the euro rose in value quite sharply, although the volatility was not very high. The benchmark EUR/USD currency pair was up by 105 pips, a rise of 0.82%, while the EUR/GBP currency cross was up by 62 pips, a rise of 0.74%, and the EUR/JPY currency cross was up by 115 pips, a rise of 0.88%.
It is very clear that the euro is now the strongest major currency in the Forex market and has gained across the board.
What Does This Mean for Traders?
The EUR/USD is an attractive currency pair to trade, especially for day traders, as it usually has the lowest spread of any Forex pair or cross. At the time of writing, short term traders may wish to try day trading this long following pullbacks, up to a target of $1.1435, provided the price does not get established below $1.1360. An intermediate hurdle can be anticipated at the round number of $1.1400.
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