- Euro falls to the lowest levels since May after ECB hikes rates and delivers an abysmal growth forecasts, while upgrading 2023 and 2024 inflation outlooks
- Post ECB decision – October 26th ECB rate hike odds hover around 35.4%
- US retail sales remained strong on back-to-school spending and despite the extra energy costs at the pump
The euro initially spiked after the ECB raised rates, but quickly tumbled after traders digested the ECB forecasts that suggest stagflation might be here. Shortly after, the US posted robust retail sales and jobless claims data, which basically drove home the message that the US economy will easily outperform the eurozone economy throughout the rest of the year. Investors were thinking that the US might be poised to deliver more rate cuts than the eurozone, but that seems like that won’t be happening anytime soon.
EUR/USD – 30 minute chart
The summer break is over for the ECB and they have a tough job ahead. Inflation remains too high and that is forcing the ECB to signal that they ” will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.” The market was split on whether they would raise rates, but when processed the forecasts, they realized stagflation risks are here.
2023 GDP forecast cut from 0.9% to 0.7%
2024 GDP forecast cut from 1.5% to 1.0%
2023 GDP forecast cut from 1.6% to 1.5%
2023 Inflation forecast raised from 5.4% to 5.6% (core steady at 5.1%)
2024 Inflation forecast raised from 3.0% to 3.2%(a tick lower to 2.9%
2025 Inflation forecast lowered from 2.2% to 2.1%(core a tick lower to 2.2%)
ECB’S Lagarde Press Conference
When asked if she was done with rate hikes, Lagarde noted that some members preferred to pause, but that still a solid majority of members agreed with the decision. One of the key takeaways from Lagarde is that they won’t be cutting rates anytime soon as inflation is still far from target. Lagarde repeated this quote a few times, “based on current assessment…. the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”
EUR/USD – Daily Chart
The euro might not be ready to punch a one-way ticket to the 1.05 level, but it sure seems like it is heading there. Price action on the EUR/USD daily highlights the bearish trend has firmly been in place since mid-July. As the risks for growth continue to deteriorate even further, the euro could see short-term weakness before a bottom is put in place. Major long-term support could be provided by the 1.04 level, which is the 50% Fibonacci retracement of the September low to July high move.
On the other side of the Atlantic, another round of US data supported USD strength after it reminded investors how strong the US economy remains; retail sales ex-auto had a fifth straight increase, producer prices came in hotter-than-expected, and jobless claims remained low.
“Soft Landing” Hope By The Fed Is Likely Optimistic
The Fed’s "soft landing" hopes are likely overly optimistic. Such was the context of the recent #BullBearReport, which discussed the long record of the…
Monsters of Rock: Copper’s in the doldrums but its long term appeal still shines for investors and burglars alike
Analysts are giving up on hopes of a major copper run in 2023, but the long term outlook for the … Read More
The post Monsters of Rock: Copper’s in…
Guest Contribution: “Underlying Inflation and Asymmetric Risks”
Today we present a guest post written by Danilo Leiva-León (European Central Bank), Hervé Le Bihan (Bank of France) and Matías Pacce (Bank of Spain)….
Companies22 hours ago
Island Pond Gold Project – Noble Mineral Exploration (TSXV: NOB – OTCQB: NLPXF)
Precious Metals23 hours ago
Gold: It’s Who’s Buying It That Counts
News Releases21 hours ago
CORRECTION FROM SOURCE: American Creek JV Partner Intersects 55 Meters of 3.35 g/t AuEq Within 255 Meters of 1.18 g/t AuEq at the Goldstorm Deposit, Treaty Creek
Energy & Critical Metals14 hours ago
Micros with Majors: Which battery maker is sniffing around these two ASX juniors for lithium supply?
News Releases16 hours ago
Sandstorm Gold Royalties Renews Credit Facility, Amends Mercedes Stream, Provides Corporate and Development Asset Updates
Energy & Critical Metals13 hours ago
IRR of 132pc? Payback in just 7 months? Latin Resources’ Colina project could host one of the biggest, lowest cost spodumene mines in the world
Uncategorized21 hours ago
Fathom Nickel (CSE:FNI) Completes Fall 2023 Drilling Program at Gochager Lake Deposit, BHEM and Surface Geophysics Results Expected in Coming Weeks
News Releases7 hours ago
Cornish Metals Releases Unaudited Financial Statements and Management’s Discussion and Analysis for the Six Months Ended 31 July 2023