EUR/USD Bullish on Softer USD After the ECB Decision
EUR/USD broke above 1.09 and is heading for 1.10 after the ECB raised rates by 0.25%, but the bullish momentum is coming from USD weakness
The US dollar is experiencing significant selling pressure against all major currencies, except for the Japanese yen, which is also seeing a notable decline. EUR/USD has recently surpassed a significant resistance area located between 1.08950 and 1.0908. The next target for the pair is the 61.8% retracement level of the downward move from the high in April, which is situated at 1.0919. If the pair manages to surpass that level, it could aim for another resistance zone between 1.0933 and 1.0942. The overall outlook suggests strength in the euro against the weakened US dollar.
ECB Monetary Policy Decision – 15 June 2023
- Main refinancing rate 4.00% vs 4.00% expected
- Prior refinancing rate was 3.75%
- Deposit facility rate 3.50% vs 3.50% expected
- Prior deposit facility rate was 3.25%
- Marginal lending facility 4.00%
- Prior margin lending facility 4.00%
- Inflation has been coming down but is projected to remain too high for too long
- Determined to ensure that inflation returns to its 2% medium-term target in a timely manner
- Rate hike today reflects updated assessment of the inflation outlook, the dynamics of underlying inflation, and the strength of monetary policy transmission
- Indicators of underlying price pressures remain strong, although some show tentative signs of softening
- Past rate hikes are being transmitted forcefully to financing conditions and are gradually having an impact across the economy
- Will continue to follow a data-dependent approach
- Full statement
In terms of macroeconomic projections, here is the latest from the ECB:
- 2023 inflation at 5.4%
- 2024 inflation at 3.0%
- 2025 inflation at 2.2%
- 2023 GDP at 0.9%
- 2024 GDP at 1.5%
- 2025 GDP at 1.6%
All the details are as what you would expect with the ECB maintaining a more or less similar message and communication to the May meeting. They did remove one line in the forward guidance passage though, that being:
“The ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed.”
That was brought in during March and I guess with the banking crisis now over and done with, they feel comfortable enough to take that out. To sum up, there isn’t anything really surprising whatsoever in this decision and the statement. Over to Lagarde next on how she wants to communicate on the July decision.
EUR/USD Live Chart
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