Euro higher ahead of rate decision

The Euro continues to trade higher in today’s trading session against the US dollar, following on from yesterday’s gains after bullish comments from European Central Bank president Christine Lagarde and now market participants are sitting tight awaiting the latest interest rate decision from the US Federal Reserve.

In a monetary speech yesterday, Mrs Lagarde noted that higher interest rates were already having an effect on reducing inflation, but the figure was still to high and more may need to be done to reduce inflation down to the ECB’s target rate.

“A sizeable policy adjustment is already behind us. Since July last year we have raised interest rates by 350 basis points. However, inflation is still high, and uncertainty around its path ahead has increased. This makes a robust strategy going forward essential,” she said.

“But the public can be certain about one thing, we will deliver price stability, and bringing inflation back to 2% over the medium term is non-negotiable,” she added.

The comments caused the Euro to move higher as it is a near certainty that the ECB will raise interest rates at their next policy meeting.

The same can’t be said however about the US Federal Reserve who are due to announce their latest rate decision later today during the American session.

Up until a week ago, there was consensus the Fed would hike rates by 25 basis points with an outside chance they would deliver 50 points in order to tackle inflation.

Due to the banking crisis in the US which have shaken the global financial system, the odds of a 25 basis point rate hike have now fallen below 50 percent and some analysts are even predicting a rate cut.

A 25-point hike by the Fed should see the Euro hold its ground and remain relatively stable while a 50 point rise will see the currency slump once again.

If rates remain on hold, the European currency is likely to break through the 1.10 mark and if by chance we see a rate cut, we will probably witness the biggest one-day gain against the greenback so far this year.