Euro hits 1-month high on ECB

The euro has reversed directions on Friday, giving up some of the sharp gains from a day earlier. Currently, EUR/USD is trading at 1.1650, down 0.28%.

Lagarde comments trigger rate hike expectations

The ECB meeting was widely expected to be a non-event, with investors looking ahead to the December meeting for a possible shift in policy. The central bank did not make any changes in policy, but the euro took off, posting its best one-day performance since May and coming close to the 1.17 line. What happened?

The euro surge against the greenback caught the markets by surprise, and I would venture a guess that nobody was more shocked than Madame Langarde. The ECB head seemed to press all the right buttons at her press conference, dampening expectations of a rate hike in 2023 and going so far as to state that comparisons to other central banks that were tapering stimulus were “odious”. Lagarde added that inflation would last longer than expected, but she expected it to decline over 2023.

Lagarde’s message was intended to keep the markets calm, but it had the opposite effect. Her acknowledgement that inflation would persist for longer raised speculation of a rate hike and sent the euro flying high. The US dollar took a tumble after Lagarde’s comments, although US yields showed gains. If this trend continues, it should help the dollar recover from yesterday’s rough outing.

In the US, weak numbers on Thursday added to the dollar’s woes. Advance GDP for the third quarter disappointed with a gain of 2.0% (QoQ), shy of the consensus of 2.7% and much weaker than the Q2 reading of 6.7%. Still, the slower growth of the US economy is unlikely to change minds at the FOMC, which will likely announce a taper at next week’s policy meeting.

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EUR/USD Technical

• 1.1685 is under pressure in resistance. This is followed by resistance at 1.1725
• There are support levels at 1.1588 and 1.1531

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