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Peter Davis

An writer at FOMOdrive

  • Dec 14, 2023
  • 2 min read

The euro soared after the statements of the head of the ECB Christine Lagarde

After the European Central Bank (ECB) delivered a hawkish message, the euro experienced a sharp rise.

The EUR/USD rate surpassed 1.10 for the first time since the end of November.

President of the European Central Bank (ECB), Christine Lagarde, stated that the Governing Council had not discussed the possibility of a rate reduction.

On Thursday, the European Central Bank (ECB) maintained its key rate at 4.50%, the same level as the previous meeting. This marks the second consecutive meeting without a change in the rate, following a cycle of 10 increases. The current rate is the highest since April 2001, when it reached a record high of 4.75%.

A Reuters poll of 90 economists revealed that the market expected the regulator's decision to keep the rate at its current level following the ECB meeting on December 14, which is what ultimately happened.

The ECB stated in its final statement that Eurozone inflation is anticipated to decrease steadily in the next year before reaching its 2% goal in 2025. The regulator still plans to bring inflation back to the medium-term target of 2%.

In November, Eurostat reported that the rate of growth in consumer prices in the eurozone had decreased to 2.4%, the lowest since July 2021. This was a decrease from the 2.9% reported in October.

Inflation has seen a broad decrease, and is predicted to slow down further in 2024. Christine Lagarde, President of the European Central Bank, mentioned at a press conference that geopolitical tensions could lead to an increase in inflation.

Lagarde stated that the European Central Bank (ECB) had not discussed reducing rates, and that there was a "plateau" between rate hikes and cuts. She further suggested that rates could stay at their current level until at least the first half of 2024, thus putting aside any speculation of rate cuts until a later date.

The market interpreted Lagarde's hawkish message as a sign that an ECB rate cut in 2024 was less likely, and reacted accordingly.

As market participants try to understand the Federal Reserve's shift from an easing to a tightening policy, US Treasury yields have dropped, causing the US dollar to weaken.

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