According to a survey of analysts, the European Central Bank's decision to raise interest rates by 50 basis points is already final, so the euro has a high probability of growing further this year. By May of this year, the cost of borrowing will likely have increased by another half-point due to the fight against ongoing inflation.
Many respondents believe that the deposit rate will remain at 3.25% for the next year or until the economy starts to deteriorate, at which point it will be reduced by a quarter point. These modifications won't likely occur until June 2024.
More than half of the analysts surveyed think that policymakers will continue to face the strongest pricing pressure in recent memory despite the 250 basis point rate hike, the ECB's most aggressive tightening of monetary policy.
Next week's ECB policy meeting, which will be the first in 2023, is very probably going to result in a half-point rate increase. This was stated repeatedly by ECB President Christine Lagarde in January. Polls also indicate that although oil prices are down, eurozone inflation is steadily declining, and the Federal Reserve is considering a less aggressive rate hike in its cycle, regulators will still be inclined to tighten policy following the February meeting.
Lagarde will give another speech today, and she and her hawkish colleagues will undoubtedly hint that the interest rate will be raised by the same amount in March as it was in February. A more gradual approach is preferred by some of the 26 members of the Governing Council, but just four out of the 46 economists questioned think it is likely to happen.
Signals for the March meeting will be the main topic of discussion in February. The possibility exists that even a small dovish reading by the markets, brought on by a softening of the phrasing, could induce a decline in the value of the euro.
Even while inflation may now be in the single digits, it is still higher than the ECB's target rate of 2% and closer to 10%. Numerous experts predict that the Governing Council's largest challenge will be to strike a balance between lowering overall inflation and the base, which is falling more slowly than expected because it ignores energy prices.
Next week, the ECB is anticipated to provide additional information regarding its plans to shrink its bond portfolio by 5 trillion euros. The procedure will start with officials allowing partial debt payback and not reinvesting the revenues, as they currently do.
Regarding the technical analysis of EUR/USD, there is still demand for the single currency, and there is a potential that monthly and annual highs will continue to be updated. To do this, the trading instrument must remain above 1.0860, which will cause it to move to the vicinity of 1.0930. You can easily get through this point to reach 1.0970 when an update to 1.1007 is imminent. Only the collapse of support at 1.0860 will put more pressure on the pair and drive EUR/USD to 1.0805, with the possibility of dropping to a minimum of 1.0770 if the trading instrument declines.
Regarding the GBP/USD technical picture, the demand for the pound is declining. Buyers must sustain their advantage by remaining over 1.2350. The only way to increase the likelihood of a further recovery to the area of 1.2430 and, ultimately, a greater movement of the pound up to the region of 1.2490 and 1.2550, is for the resistance at 1.2440 to fail. After the bears seize control of 1.2350, it is feasible to discuss the pressure on the trading instrument returning. The GBP/USD will be pushed back to 1.2285 and 1.2170 as a result, hitting the bulls' positions.