FOREX-Euro and Pound Fall as Investors Predict the Rating Outlook
The euro fell against the dollar on Thursday after the European Central Bank raised interest rates by 50 basis points, as expected, while the Bank of England took a more dovish stance on inflation.
The ECB has planned at least one more hike of the same magnitude for next month and has stated that it will then evaluate its monetary policy path. The Bank of England also raised interest rates by 50 basis points, abandoning its pledge to raise them "forcefully" if necessary, and stated that inflation had most likely peaked. "The ECB was more or less in line with expectations, and the Bank of England sounded a bit more dovish," said Joe Manimbo, senior market analyst.
"You get the impression that central bankers are taking some solace from inflation moving in the right direction." The euro fell 0.70% on the day to $1.0913, while the pound fell 1.09% to $1.2240, its lowest level since January 17. The dollar rose 0.74% to 101.71 against a basket of currencies. Some ECB comments were interpreted as dovish, and it appears that "there is more of a global central bank pivot taking place," according to Mazen Issa, senior FX strategist at TD Securities in New York. "Central banks are in data-dependent mode, but that means they're no longer in control, and markets are currently leading the central banks."
On Wednesday, the dollar index fell to a nine-month low of 100.80 after Federal Reserve Chair Jerome Powell was interpreted as sounding more dovish about future monetary policy. The Federal Reserve of the United States said it had turned a key corner in the fight against high inflation, but that "victory" would still necessitate raising its benchmark overnight interest rate further and keeping it there at least until 2023. Markets reacted by increasing bets that the Fed will stop hiking after another 25 basis point increase in March, and then cut rates in the second half of the year.
"It certainly sounded like Powell flew the mission accomplished banner yesterday, casting doubt on whether or not their December dot plot is still viable," Issa said. Fed officials predicted in December that they would raise rates above 5%, but traders expect the benchmark rate to peak at 4.88% in June before falling to 4.40% by December. According to data released on Thursday, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating that the labor market remained resilient despite higher borrowing costs and mounting concerns about a recession. Worker productivity in the United States increased faster than expected in the fourth quarter, resulting in a slowing of labor cost growth.
The major economic release in the United States this week will be Friday's employment report for January, which is expected to show that employers added 185,000 jobs in the month.