Euro interest rate decision follows US Fed decision and UK Budget

Thursday sees the ECB (European Central Bank) interest rate decision wit expectations firmly behind a ‘hold’ but with a bias towards future hikes. The EURO is near the lowest levels since May25 vs USD (1.1175) and suffering vs GBP as well (1.1930).

Against the backdrop of France’s huge debt burden and higher rates straining finances across European states, the only way for the EUR to strengthen will be from a VERY hawkish tone in today’s ECB statement, designed to boost the currency.

Deutsche Bank’s Mark Wall and Michael Kirker report that survey respondents expect the European Central Bank (ECB) to continue hiking into 2027.

Last night saw the US Central Bank keep interest rates on hold as widely expected, in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring a quarter-point hike. Adding to this, Chair Kevin Warsh signalled during the post-meeting press conference that the central bank remains vigilant against persistent inflation risks stemming from the Middle East conflict.

This comes on top of concerns about energy-driven price pressures and underpins prospects for further tightening by the Fed. According to the CME Group's FedWatch Tool, traders are pricing in around an 80% chance that the US central bank will raise borrowing costs at its December policy meeting.

The USD was boosted but did NOT cause GBP/USD to hit the resistance level of 1.3200, instead GBP/USD remains at 1.3300 on the back of a UK Budget which, from a currency perspective, was tepid.

So where does this leave us?
Essentially treading water in USD terms, with globally high inflation and expectations of future interest rate hikes. It is the pace and relative timing of these hikes that will effect currencies. In the meantime, the market is closely watching the US mid-terms, key inflation data and the ongoing conflicts across the globe.