The European Central Bank (ECB) raised its basic interest rates by 75 basis points, leaving the deposit rate at 0.75%. In the opinion of economists at TD Securities, the decision does not inspire much confidence in the euro.
Outlook for EUR/USD remains bearish
“At a minimum, neither Lagarde’s press conference nor the 75 basis point hike is enough to inspire much confidence in the euro.”
“The move to positive rates will undoubtedly have some impact on the diversification of portfolio flows towards assets denominated in the EU, but it will have to be more than enough to offset worsening trade flows to be a support for the euro. Economic and political stability will also be necessary. Right now the EU has neither.”
“The rise of the euro is a very difficult argument to sustainas the US is in a much stronger position, with greater energy security, than the Europeans, who hitch their wagon to Russia for their energy needs.”
“Short term, we would look for some consolidation in EUR/USD ahead of next week’s US CPI. But we see clear lines in the sand with 1.01 as the vanishing point if we get to it. EUR/USD to the downside remains its most likely path.”
Source: Fx Street
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