Euro Strengthens Ahead of ECB Decision on Interest Rates
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Euro Strengthens Ahead of ECB Decision on Interest Rates

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Azeez Mustapha

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Investors are closely monitoring the Euro’s movements as anticipation builds around the European Central Bank’s (ECB) imminent decision on interest rates. The Euro managed to gain ground against the US Dollar, reflecting the keen interest in the ECB’s upcoming announcement.

The ECB faces a challenging situation, torn between the surging inflation rate in the Eurozone, which currently sits at the 5.3% mark, surpassing the 2% ECB target.

Euro Area inflation rate chart
Source: Trading Economics

Analysts’ predictions vary; some foresee a 25-basis-point rate hike, spurred by a Reuters report hinting at a revision of next year’s inflation forecast. Conversely, others advocate caution, suggesting the ECB may delay any rate increase until it observes more robust, sustainable economic growth and inflationary pressures.

Euro Rebounds from Weekly Low

As of now, the Euro is trading at $1.0733, a modest 0.04% rise compared to its close on Wednesday. Earlier in the session, it touched $1.0752, rebounding from a three-month low of $1.0685 recorded just last Thursday.

EUR/USD Daily Chart
EUR/USD Daily Chart

On the other side of the Atlantic, the US Dollar maintained relative stability against other major currencies. This came despite the release of US inflation data, which seemingly didn’t sway expectations for the Federal Reserve’s monetary policy.

The consensus points toward the Fed maintaining its current interest rates during its meeting on September 20th, with an announcement regarding a gradual reduction of its bond-buying program expected later in the year.

In August, the US consumer price index witnessed a notable 0.6% increase, the most significant jump since June 2022. This uptick was primarily driven by escalated costs of energy, food, and transportation. Nevertheless, core inflation, which excludes volatile items, decelerated slightly to 4.3% year-on-year from 4.7% in July.

US Core inflation rate chart
Source: Trading Economics

The dollar index, which gauges the greenback against a basket of six major currencies, remained steady at 104.73.

As the ECB’s decision looms and economic data continues to unfold, the Euro’s fate remains in the balance, with traders and investors watching closely for cues on the path of Eurozone monetary policy.

 

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