Home Daily Commentaries Euro falls after ECB hikes rates 0.25%

Euro falls after ECB hikes rates 0.25%

Daily Currency Update

GBP/USD has dropped over two cents in the past 24 hours as a slew of good US data raised the possibility that the US Federal Reserve may have to enact another interest rate hike later this year or at least hold rates at their current level of 5.5% for longer. Yesterday saw the first reading of US GDP for April-June with an annualized rate of growth of 2.4% shown, above expectations of 1.8%. The previous quarter's number was also revised higher to 2% from 1.1% highlighting the resilience of the US economy despite its enduring decades of high inflation over the past couple of years. Better-than-expected durable goods orders, unemployment claims, and trade balance numbers were released at the same time and the dollar rallied as a result. GBP/USD which was close to 1.30 this time yesterday is now under 1.28. Later today we have US Personal Consumption Expenditure figures due at lunchtime. Looking further ahead Thursday 3rd August sees the Bank of England interest rate decision, which is expected to see Governor, Andrew Bailey unveil another 0.25% rise in the cost of borrowing. Clues as to how many more rises we are likely to see thereafter will be the main area of interest with markets paring back their expectations of how high the Bank rate may peak after UK inflation fell further than expected earlier this month. GBP/USD is at 1.2780 with GBP/EUR at 1.1665.

Key Movers

Yesterday saw the latest interest rate decision from the European Central Bank with ECB chief, Christine Lagarde confirming another 0.25% raise. There was little movement until the press conference that followed which saw the euro tumble. Lagarde warned that the Eurozone's "economic outlook had deteriorated" and that the manufacturing sector was being particularly badly affected by high inflation and a drop in external demand. The recent mantra that the Bank needs to keep raising rates was also dropped calling into doubt whether we will see another hike in this cycle. A lot will obviously depend on inflation data with two more monthly readings due to be published before policymakers make their next decision on September 14th. EUR/USD has fallen from 1.1150 to 1.0950 over the past 24 hours.

Expected Ranges

  • GBP/USD: 1.2700 - 1.2880 ▼
  • GBP/EUR: 1.1600 - 1.1745 ▲
  • GBP/AUD: 1.9180 - 1.9360 ▲
  • EUR/USD: 1.0900 - 1.1040 ▼