EUR/USD Stumbles Following ECB Rate Hike Decision

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EUR/USD was impacted by the European Central Bank’s (ECB) decision to raise interest rates by 50 basis points on Thursday. This move was in line with market expectations, and the ECB confirmed that it plans to raise rates further to bring inflation back to its 2% medium-term target.

The central bank has been hawkish in its approach to monetary policy, with ECB policymakers signaling their intent to raise rates by another 50 basis points at the next monetary policy meeting in March.

In addition to the interest rate hike, the ECB also confirmed the decline of its APP portfolio. The Eurosystem will not reinvest all of the principal payments from maturing securities, leading to a measured and predictable decline of €15 billion per month on average until June 2023. The subsequent pace of the decline will be determined over time.

As the ECB moves forward with its monetary policy, inflation and core inflation data will play a significant role in shaping future decisions. ECB policymakers have been focused on bringing inflation back to target, and they appear to be prepared to continue taking action to achieve this goal.

EUR/USD Trading Down By 0.6% on Thursday

In the short term, EUR/USD saw a 20-pip drop following the ECB’s announcement, but the currency quickly stabilized and was trading flat ahead of the press conference. The EUR/USD has reached the psychological 1.1000 level, and there is limited resistance to the 1.1200 level.

However, the RSI on both the 4H and D timeframes suggests that a pullback may be on the horizon before the currency continues higher. So far, the forex pair trades down by 0.6%.

Overall, the ECB’s monetary policy decisions and the inflation outlook will continue to impact the EUR/USD in the coming months. The central bank’s hawkish approach and focus on inflation will be closely watched by currency traders as they seek to understand the direction of the market.