ECB's Hawkish Hike: Boosting EUR/USD and Shaping Global Monetary Policy
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FXMAG.COM: Could you please comment on the ECB decision?
ECB's "Hawkish Hike" Boosts EUR/USD
The European Central Bank (ECB) has raised its key interest rate by 25 basis points to 3.5% in an effort to combat rising inflation in the eurozone. This marks the eighth consecutive rate hike since July 2022 and reflects the ECB's determination to bring inflation down from its current level of 6.1% to its target of 2%. ECB President Christine Lagarde has indicated that further rate hikes are likely at the bank's next meeting in July, emphasizing that there is still ground to cover in tackling inflation. Lagarde stated that the ECB will continue to raise rates and has no plans to pause.
While the ECB is focused on controlling inflation, other central banks, such as the US Federal Reserve, have taken a pause in their rate hikes to assess the impact on economic growth and jobs. However, the Fed's projections indicate that there may still be two more rate hikes this year. Central banks in Australia and Canada have also resumed rate increases after a pause, highlighting the widespread issue of high inflation in the global economy.
The ECB's decision to raise rates comes amid an uncertain economic outlook due to factors such as the war between Russia and Ukraine and potential wage agreements that could further exacerbate inflation. The ECB acknowledges that economic growth in the short term may remain weak but expects improvement as inflation subsides and supply disruptions ease. While there are concerns that higher rates could weaken the economy and increase the risk of a recession, the ECB is prioritizing the need to address inflation.
EUR/USD is rallying as a result of the more-hawkish-than-expected announcement, and with potential for multiple additional rate hikes from the ECB, EUR/USD bulls may look to target the Fibonacci retracements of the Q2 pullback at 1.0920 and 1.1000 next.
