ECB rate decision to drive Euro

Published on 23.10.2023 11:10

The Euro is trading lower against the US dollar as we get ready to enter today’s European trading session after running into stiff resistance at the the 1.0600 psychological round mark. The main focus of this week for the EUR/USD currency pair will be the European Central Bank (ECB) meeting on Thursday where they will deliver their latest interest rate decision.

According to most analysts the ECB’s rate hiking cycle is over, but it won't be until at least July 2024 before it begins reducing interest rates as inflation is set to stay elevated for longer than expected.

Apart from this, the European Union is considering extending an emergency gas price cap imposed in February, amid concerns that the Middle East crisis and sabotage of a Baltic pipeline could push prices up again this winter. The fear of the Eurozone energy crisis could exert some selling pressure on the Euro and act as a headwind for the EUR/USD pair. Additionally, geopolitical tensions in the Middle East continue to hang over the market. Any sign of escalating tensions could see weigh on the riskier currency like the Euro.

As the FOMC enters its blackout period, the Federal Reserve (Fed) Chair Jerome Powell and many Fed officials signalled that interest rates would be held steady at its November meeting. The Fed Chair Jerome Powell signalled a desire to pause rate hikes and watch how economic data develops in the coming months. Powell further stated that more monetary policy tightening might be appropriate if there are more indications about above-trend growth or if the labor market stops easing.

 Atlanta Federal Reserve (Fed) President Raphael Bostic also joined in on Friday and noted that he doesn't think that the US central bank will cut the rate before the middle of next year. Fed Philadelphia President Patrick Harker reiterated his preference to keep interest rates unchanged. While Fed Cleveland President Loretta Mester said the US central bank is "at or near the peak of the rate hike cycle.

Looking ahead this week, there is not much economic news to hit the market today but tomorrow investors will keep a close eye on German and Eurozone HCOB PMI data . On Thursday, the European Central Bank (ECB) will announce its monetary policy decision and traders will also closely watch ECB President Christine Lagarde's press conference for fresh impetus.

From the US we will see the release of the US S&P Global PMI will be due on Tuesday, followed by the first reading of Q3 Gross Domestic Product (GDP) growth on Thursday and the Core Personal Consumption Expenditures (PCE) on Friday. These figures could give a clear direction to the EUR/USD pair.