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Broad Single Currency Weakness Following ECB 25BP Hike

EMERGING MARKETS
  • ECB RAISES DEPOSIT FACILITY RATE BY 25BPS TO 3.25%; EST. 3.25% (BBG)
  • ECB RAISES MAIN REFINANCING RATE BY 25BPS TO 3.75%; EST. 3.75% (BBG)
  • Broad single currency weakness prevailing across currency markets following the ECB’s rate decision and release of the statement. EURUSD, after holding just below the year’s 1.1095 highs overnight has sharply reversed to session lows of 1.1013 as of writing.
  • So far, initial support at 1.0999 has held and key short-term support resides at 1.0942, Tuesday’s low. A clear break of it would signal scope for a deeper correction.
  • The ECB has pointed to a need to “ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.” It also highlighted its data-dependent stance, noting that “in particular, the Governing Council’s policy rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”
  • Elsewhere, the ECB noted that the “the Governing Council will keep reducing the Eurosystem’s asset purchase programme (APP) portfolio at a measured and predictable pace. In line with these principles, the Governing Council expects to discontinue the reinvestments under the APP as of July 2023.”
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