The Euro Finds Some Respite Against the Strong Greenback

Euro

The Euro gained traction afore today’s European Central Bank (ECB) meeting after the better-than-expected Euro-wide GDP figures yesterday. The final annual GDP of 4.1% to the end of July beat forecasts of 3.9%.

The markets expect the ECB to raise rates by 75 basis points the overnight index swaps (OIS) market is slightly less convinced, pricing in a lift of around 67 bps.

Central banks worldwide are tightening rates to avoid inflation, with the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) walking in that direction this week.

The Federal Reserve has clarified that they are serious about tackling price pressures. Yesterday we heard from Federal Reserve Bank of Cleveland President Loretta Mester and Federal Reserve Vice Chair Lael Brainard. They both reiterated their hawkish stance.

Due to higher Treasury yields, the USD has been broader, keeping the EUR/USD under pressure for a while. A fragile economic state remains a major source of concern for the ECB in its fight against inflation.

The Russian invasion of Ukraine is seriously affecting the energy supply. The Dutch Title Transfer Facility (TTF) natural gas futures contract has pulled back from astronomical highs seen in August but remains significantly elevated. This fuel scarcity has also been a pain in the neck for the EUR.

A hawkish ECB might suit the Euro against the Japanese Yen

If the ECB raises rates by 75 bp today, where will it send EUR/USD?

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