FOREX Fundamental Analysis on October 28, 2022
The European Central Bank expectedly raised its rate by 75 basis points on Thursday, which did nothing to strengthen the single currency. On the contrary, investors clearly heard a hint at the regulator's hawkish course during Christine Lagarde's speech.
In 2022 the ECB did not act as resolutely as the Fed, which actually has its reasons - the war in Ukraine, the energy crisis, the weak recovery of the economy after the pandemic COVID-19. Against this background, the European regulator will not, and will not be able to, catch up with the Fed on the speed of monetary restriction. The ECB is a clear outsider at this distance, the more so since the signals of a recession in the European economy make it very difficult to tighten the course of monetary policy.
Analysts noticed that the phrase about the need to raise rates at the next meetings has disappeared from the accompanying statement of the European regulator. And even this time not all of the governors agreed to raise the rate by 75 basis points. Three members suggested a 50-bp monetary tightening.
Perhaps the ECB is returning to its easing policy too soon, which will undo all the regulator's efforts to fight inflation. But on the other hand - the main driver of European inflation has been and remains energy prices. Decline in gas prices is likely to affect the dynamics of consumer prices.
The European Central Bank expectedly increased the interest rate by 75 basis points on Thursday, which did not strengthen the single currency in any way. On the contrary, investors clearly heard a hint at the regulator's hawkish stance during Christine Lagarde's speech.
In 2022 the ECB did not act as resolutely as the Fed, which actually has its reasons - the war in Ukraine, the energy crisis, the weak recovery of the economy after the pandemic COVID-19. Against this background, the European regulator will not, and will not be able to, catch up with the Fed on the speed of monetary restriction. The ECB is a clear outsider at this distance, the more so since the signals of a recession in the European economy make it very difficult to tighten the course of monetary policy.
Analysts noticed that the phrase about the need to raise rates at the next meetings has disappeared from the accompanying statement of the European regulator. And even this time not all of the governors agreed to raise the rate by 75 basis points. Three members suggested a 50-bp monetary tightening.
Perhaps the ECB is returning to its easing policy too soon, which will undo all the regulator's efforts to fight inflation. But on the other hand - the main driver of European inflation has been and remains energy prices. Decrease in gas prices will surely affect the dynamics of consumer prices.
In addition, the "hawkish" course of the Central Bank has been repeatedly criticized by the political leaders of European countries. And although the ECB is independent in its decisions, the slowdown in economic growth in the Eurozone could seriously affect the prospects of the monetary policy of the regulator.
By the way, there is a similar situation in the U.S. Recession risks may adjust the Fed's plans regarding the speed of monetary restriction.
The return of the ECB to the "dove" camp has dispelled the optimism of euro buyers. But the EUR/USD outlook is unlikely to be clear before the release of the results of the Fed meeting on November 3. I believe that investors will take a pause and wait for Jerome Powell's signals. Most likely, the pair will remain in a consolidation format, and although forex day strategies allow trades in both directions, we continue to keep selling open from 1.002 until the range boundaries are clearly defined.
Read more: The European Central Bank (ECB)