Home Daily Commentaries Euro rallies on reports of further ECB rate hikes

Euro rallies on reports of further ECB rate hikes

Monday 12 September, 2022

Daily Currency Update

With the passing of Queen Elizabeth II, this week’s main domestic economic event, the Bank of England's interest rate decision, has been postponed until next week as the UK observes a period of mourning in honour of the late monarch. There has been some domestic data of note released this morning with UK monthly GDP for July rising 0.2% compared to a month earlier. This was a little worse than the 0.3% predicted and the report from the Office of National Statistics also showed that the economy flatlined for the three months to July compared to the three months previous. The main event this week will be the release of the latest inflation figures due on Wednesday morning. Expectations are that CPI will hold at 10.1% before pushing higher as we head towards winter. Despite the slightly under par GDP number, sterling has pushed higher as the data is backward looking and the market sees some US dollar weakness as we start the week. GBP/USD is heading towards 1.17 with GBP/EUR back under 1.15, its lowest level in nearly three months.

Key Movers

EUR/USD has rallied this morning as European governments start to discuss intervening to protect households from soaring energy costs. The euro is also being aided by reports that the European Central Bank will have to raise rates further than expected in an effort to prevent inflation that currently stands at 9.1% rising much higher. Eurozone CPI is at its highest level since the inception of the shared currency and like the UK could hit double digits before too long. The report issued by Reuters on Saturday said that it expects the ECB will be forced to raise rates to 2% or more which would be restrictive to growth. However, at the moment, the euro has taken flight from the news and EUR/USD is heading towards 1.02 as a result. It’s a quiet start to the week from the States, however we should expect some volatility tomorrow lunchtime as the latest CPI numbers are released with a fall from 8.5% to 8.1% eyed. Should the rate fall further than expected then we could see further US dollar losses as it will give the Federal Reserve a bit more wriggle room to slow the pace of interest rate hikes. US Retail Sales due on Thursday will likely also be closely watched.

Expected Ranges

  • GBP/USD: 1.1595 - 1.1740 ▲
  • GBP/EUR: 1.1400 - 1.1520 ▼
  • GBP/AUD: 1.6890 - 1.7120 ▲
  • EUR/USD: 1.0030 - 1.0210 ▲