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23.03.2023 12:38 PM
ECB stands firm on its position

Euro rose as market players were pleased over the Fed's interest rate decision yesterday and statements made by ECB officials. The latter is increasingly convinced that the eurozone banking system has withstood the financial turmoil, so they continued to raise interest rates.

Most of the officials who spoke earlier this week believe that a 50 basis point rate hike in the eurozone is the right thing to do. Thus, the ECB remained aggressive despite the global market volatility caused by the banking turmoil. Other central banks are claiming the need to "loosen the grip", such as the Fed, which raised rates by only 0.25%. The move led to euro hitting 1.0900.

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It seems that ECB officials are more worried about insurmountable inflation than the damage to economic growth from the recent turmoil. They also looked anxiously to the US for signs of further problems that could consume the European banking sector entirely. But since the bankruptcy and takeover of Credit Suisse is not similar to what happened to three regional banks in the US, the ECB continued to press on with an intensified fight against inflation.

ECB President Christine Lagarde also insisted that if core inflation continues to remain high, they will have more reason to raise rates further. "I made it clear that there is no trade-off between price stability and financial stability," she reiterated. "We see no clear evidence that core inflation is trending downwards," she added.

Clearly, despite the problems in the banking sector, financial markets in the eurozone continue to function and government bond markets show no signs of fragmentation. Euro also remains resilient and bank stocks have regained some of the losses from last week.

Bundesbank President Joachim Nagel recently said in an interview that once the ECB stops growing, it will have to resist calls to cut rates as this would allow inflation to flare up again. "If we want to tame inflation, we will have to be even more stubborn," he said.

In terms of the forex market, euro bulls still have all the chances to renew the March highs, but to do this they need to hold the quote above the support level of 1.0870. That will allow EUR/USD to rise beyond 1.0930 and head towards 1.0965 and 1.1000. In case of a decline, the pair will fall below 1.0880, and then go to 1.0840 or 1.0800.

In GBP/USD, bulls are ready to keep storming the monthly highs, but they have to keep the quote above 1.2280 and breakthrough 1.2330. That will push the pair to 1.2390 and 1.2450. Should bears take control of 1.2280, a slide towards 1.2220 and 1.2180 is possible.

Jakub Novak,
الخبير التحليلي لدى شركة إنستافوركس
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