Euro climbs as the ECB refrains from a pivot to rate cuts | Forexlive
The euro is trading at a six-week high after the ECB rate decision.
It’s tempting to point to the ECB as the main catalyst but the euro is lagging the moves in the pound, Australian dollar and kiwi. It’s taking advantage of broader US dollar selling on an improvement in the general risk trade. The Nasdaq is up 1.2% and the S&P 500 up 0.9%, both near session highs.
Still, the euro has been making slow progress from the past month and is now at the best level since Jan 23 (the high that day of 1.0932 is also near-term resistance).
EURUSD daily
The initial selling on the ECB decision came as eurozone growth and inflation forecasts were revised lower. Given the ECB’s focus on inflation, that sparked speculation about a rate cut being teed up for April.
However Lagarde directly pushed back on that, saying “We will know a little more in April but a lot more in June.” That’s a strong hint that a cut isn’t coming until June, which is when a cut was priced in anyway.
I’d argue that the ECB would be wise to get ahead of sagging growth with a rate cut but that doesn’t appear to be the plan. The GDP forecast was lowered to just 0.6% this year from 0.8%. Waiting too long risks re-establishing a period of below-target inflation and weak growth that will ultimately push interest rates back to the lower bound and weigh on the euro.
However the market is more focused on the near term right now and that’s helping the euro.