The ECB makes its moveEveryone’s been watching the European Central Bank for its historic rate hike decision, and it comes out harsher than anyone expected.
- The ECB just hiked interest rates for the first time in 11 years. The central bank lifted rates by 50bps, outpacing the 25bps that most market participants were expecting – rates had actually been in negative territory since 2014, so this increase officially takes interest rates to a whoppping 0.00%.
- The region is still somewhat behind the curve on the whole interest rate thing despite being one of the worst hit by the energy crisis, having watched global peers pump up their rates for some time now – tho not all of them tbf, with Japan’s central bank saying this week it has no plans to increase rates.
- How’re currencies reacting to all this? After falling below parity with the dollar for the first time since 2002 last week, the Euro is now trading at $1.015 against USD, falling slightly on news of this rate hike after a couple days in the green. The Fed’s next hike will come next week, and everyone is supes nervous to see how the market reacts.
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The dollar displays its dominanceInvestors in Europe continue to grapple with the threat of an energy crisis, fleeing to the perceived safety of the dollar.
- The euro slid to its lowest levels against the dollar in two decades after a 1.47% drop on Tuesday, which took its YTD losses to over 9%. The currency is now approaching parity with the greenback, and continues to see its value fall against other currencies as well to become one of the worst hit by growing recession fears.
- Europe’s energy woes continue to leave their mark. Russia’s dominance over the region's oil and gas supplies become more concerning as sanctions show no signs of abating and Putin shows no sign of backing down, made only worse by a series of worker strikes across Norwegian gas fields.
- Meanwhile, the US Dollar Index reached a 20-year high on Monday to cross the $105 mark and take its YTD gains to just under 11%. The dollar is backed by the world's largest gold reserves and the Fed is one of the most hawkish central banks out there atm, so people are looking at the dollar as a safe haven currency – with another 0.75bps rate hike expected, Jeffries reckons that strength is only gonna grow.
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