The Euro remained in a tight trading range against the US dollar on Tuesday, as Eurozone recession fears threw into doubt the amount of further rate hikes from the European Central Bank as the year comes to an end
The Euro was trading at around $1.0400 at the time of writing, barely moving a few points up or down.
Despite gains against the US Dollar, the Euro struggled for support during today’s session as the promise of further interest rate hikes from the European Central Bank was undercut by recession fears for the bloc.
Ken Wattret, Vice President of Economics at S&P Global Market Intelligence explained that the ECB would likely have to continue further into 2023 than currently expected, which served to cushion the Euro somewhat.
“More resilient economic conditions, stickiness of inflation, potential spillovers on to inflation expectations and longer-lasting wage pressures could force the ECB to keep tightening for longer into 2023 than we currently predict.” he said.
While positive for EUR investors, the ECB’s attitude risks doing damage to the bloc’s economy in the longer term, with the central bank having to walk a very fine line between controlling inflation or letting it spiral out of control.
Certain ECB policymakers have taken a more dovish stance. Chief Economist Philip Lane suggested that the bank may consider smaller interest rate hikes in December, and that the ECB will have to weigh up the pros and cons of another 75bps hike.
Looking further ahead today, the main drivers of the EUR/USD currency pair will be the release of the latest GDP figures from the European powerhouse Germany which are expected to come in at 0.3 percent on a monthly basis and 1.2 percent for the yearly figure which means they will remain unchanged from last month.
A figure better than expected is certainly going to add to the case for a 75 basis point rate hike next month from the European Central bank.