Hawks are defined as those members of committees deciding on interest rates who are in favor of raising those rates. So there was a rally of hawks this week, as both the Fed and the ECB and the Bank of England and the Bank of Switzerland, among others, decided to raise the price of money and, moreover, are unlikely to change that for the time being. The king, or rather queen of the hawks, became the president of the European Central Bank, Christine Lagarde, and her statement supported the euro exchange rate.
The European Central Bank yesterday raised interest rates by 50 basis points as expected, reiterated that there would be further increases and outlined plans for quantitative tightening. The common currency initially strengthened after the decision and reached a six-month high of $1.07. In the afternoon, however, it gave back some of the earlier gains, with market participants trying to assess how much additional rate hikes would hurt the already fragile economy. The ECB raised its inflation forecasts, while economic growth forecasts were sharply lowered.
According to the latest forecasts by ECB economists, inflation is expected to reach 8.4 percent in 2022, only to fall to 6.3 and 3.4 percent in the next two years, respectively. Meanwhile, GDP is expected to grow by 3.4 percent in 2022, only to fall to 0.5 percent in 2023 and rise to 1.9 percent in 2024. However, that was not what seemed to be the most important statement. It was probably that the ECB needs to raise rates more than the market is currently pricing in. Christine Lagarde assumes that rates in the Eurozone can be raised at 50 bps for a longer period of time. Thus, the market has begun to expect the peak in eurozone rates to fall above 3 percent.
Source: Conotoxia MT5, EURUSD, H1
As a result, the euro was above $1.07 at one point, and what's more, the eurozone may be coming out on top in terms of the pace of rate hikes in the future. Nevertheless, high interest rates and a weaker outlook for economic growth may leave their mark on other markets like the stock market.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75,21% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trade this news from Conotoxia Ltd. platforms
Go to your account
