EUR/USD Rate Talking Points
EUR/USD[1] rallies to a fresh monthly high (1.1692) as the European Central Bank (ECB) strikes a hawkish outlook, and the exchange rate may stage a larger advance going into November as the exchange rate marks the largest one-day rallysince May.
EUR/USD Rate Marks Largest One-Day Rally Since May on Hawkish ECB
The initial reaction to the ECB interest rate decision[2] dragged on the Euro[3] as the central bank stays on track to carry out “a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year,” but the decline was short-lived, with EUR/USD[4] bouncing back from the session low (1.1582) as President Christine Lagarde and Co. “foresee inflation rising further in the near term.”
It seems as though the ECB will draw up an exit strategy over the coming months as the central bank anticipates Euro Area “output to exceed its pre-pandemic level by the end of the year,” and a growing number of Governing Council officials may show a greater willingness to draw down the emergency measures as “the current phase of higher inflation will last longer than originally expected.”
As a result, signs of sticky price growth may put pressure on ECB to switch gears as “inflation will take longer to decline than previously expected,” and EUR/USD may continue to appreciate ahead of the Federal Reserve interest rate decision on November 3 as the US Gross Domestic Product (GDP) report[5] points to a less robust recovery.
In turn, EUR/USD may continue to retrace the decline from the September high (1.1909) as mixed data prints coming out of the US economy undermines speculation for an imminent shift
