The economists of Commerzbank analyze the outlook for the Euro after the ECB raised its official interest rate last Thursday and ECB President Christine Lagarde signaled that the ECB has likely reached the end of the rate hike cycle.
The currency market will wait to see what surprises the Fed has in store for us
In the coming days and weeks, it should become increasingly clear to what extent the ECB’s monetary policy board might be willing to raise interest rates again. Or what conditions would have to be met to take that step. These comments should benefit the Euro, as the market currently seems to be betting on the end of the rate hike cycle, which could clear the way for rate cuts next year. Comments suggesting that a rate cut is still some way off would also be positive for the euro.
However, it may also be the case that Council members agree that the end of the rate hike cycle has been reached. In that case, the market is more likely to interpret it as a dovish stance from the ECB and the Euro could come under downward pressure.
In the short term, however, the focus is on the US Fed. Pending Wednesday’s rate decision, the currency market will wait to see what surprises the Fed has in store for us.
Source: Fx Street
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