Euro jumps after ECB rate decision

On Thursday, the European Central Bank (ECB) increased its key rate to the highest it has been in the past 15 years.

The regulator predicted higher inflation rates for the upcoming years.

Ms. Lagarde stated that the European Central Bank (ECB) will persist in increasing interest rates.

For the first time in the past month, the euro exchange rate rose above $1.09.

On Thursday, the European Central Bank (ECB) raised its key rate by 25 basis points, as anticipated, bringing it up to 4%. This is the highest rate since October 2008, when it was at 4.25%.

Since July of last year, this has been the eighth consecutive rate hike, resulting in a total increase of 400 basis points (4%).

The European Central Bank (ECB) has revised its inflation forecasts, excluding energy and food prices, to 5.1% in 2023, 3% in 2024, and 2.3% in 2025. Meanwhile, its economic growth projections for the Eurozone have been slightly reduced, with 0.9% expected in 2023, 1.5% in 2024, and 1.6% in 2025.

The ECB cautioned that rates will remain at their current high levels until inflation is brought back to its 2% goal.

At a press conference, Christine Lagarde, the head of the European Central Bank, stated that the prior higher energy prices, combined with pent-up demand, are still causing prices to rise. Additionally, wage increases are becoming a more significant factor in inflation.

She stated that inflation is expected to stay at an excessive level for an extended period of time, and that they are not considering a break in the process, and are highly likely to increase rates in July.

Lagarde stated that these rates will remain in place for as long as it is required, and the ECB must be certain that core inflation is decreasing.

In May, headline inflation in the Eurozone was 6.1%, a decrease from the record 10.6% in October. Core inflation, which does not take into account volatile elements, has decreased to 5.3%, but is still higher than the European Central Bank's (ECB) target of 2%.