The single European currency is in an environment of mild reaction after the intense pressure it received yesterday in the wake of a 25-point increase in interest rates by the ECB.
In a controversial decision as several members of the central bank’s board were against the new hike, President Lagarde noted that she expects the new levels of key interest rates in the long term will be able to drive inflation to acceptable levels.
The main question is who will be the path of the European economy.
The bets are now concentrated on the decisions of the Fed and if the US central bank will proceed with another increase in key interest rates .
So far the US economy has good reflexes to the high-interest rates and although inflation is on the way to de-escalation, another increase would not be a surprise.
Despite yesterday’s increase in interest rates, the Euro was under pressure as investors put in the game more the scenario of a pause in the increases than the announcement.
In any case I believe that this thinking will quickly be digested by the markets and there will not be collapse of the single currency.
The week’s rich agenda is completed today with new speeches by President Lagarde and consumer sentiment in US.
Without any significant surprise, the market is most likely to digest yesterday’s movement and I would hardly see the level of 1.06 being strongly challenged for today.
The behavior of the market has broadly confirmed my thinking as expressed in yesterday’s article and I already maintain position in favor of Euro at the 1.0650 levels, aiming for a good reaction.