The ECB has lifted its main refinancing rate and deposit rate by 25bps to 4% and 3.5% respectively. This was in line with market expectations. The central bank is in on shaky ground given that the region is in technical recession. However, the ECB is firmly focusing on its fight against inflation. EU core inflation has shown signs of moderation lately (green arrow), but its rate of change (ROC) is still too high – it is on the acceleration side of zero (red rectangle). To reach target, it is imperative that the ROC drops below zero.
Given this hike and the Fed's pause yesterday, the spread between the German 2-year bund and US 2-year note has widened. This has filtered through to the forex market and lifted EURUSD on the day to trade near 1.0890.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.