Euro rallies after European Central Bank surprise

Key Movers

The surprising story of yesterday was the European Central Bank suggesting that we could see a hike at some point this year. The meeting started with an unchanged monetary policy statement as expected, but this was soon followed by a press conference where ECB President Lagarde did not rule out the possibility of a rate hike before the year ends. Many believe that this will come in Q4 of 2022 while the ECB will likely also speed up the unwinding of the purchases made through their Asset Purchase Program.

The reason this was so surprising is due to the fact that the ECB have been amongst the most cautious of the world’s leading central banks in terms of tightening policy and hiking rates, in contrast with the BoE who hiked yesterday for the second time in two consecutive meetings, and the US Federal Reserve who are looking at a March hike.

After GBPEUR rising post BoE announcement to around 1.2065, the pair then completely reversed its course after the ECB press conference dropping over 1 cent to 1.1935 and has continued its descent since. This morning GBPEUR has been trading around the 1.1850 mark and vs the US dollar the euro climbed yesterday from 1.1280 to 1.1402. It has also been climbing slowly since with the pair just breaking through the 1.1450 mark.

The strong messages sent out by both central banks yesterday sent the dollar tumbling with the dollar index – a measure of the US dollar against a basket of other currencies – dropping below 95.50 for the day. The major talking point for the day ahead also comes from the US with the widely watched monthly official jobs report due this afternoon. Nonfarm payrolls are expected to rise by 150,000 across January which is a slowdown of around 50,000 after a gain of 200,000 in December. This could have an impact on the dollar so it’s one to keep an eye on.