EUR/USD shrugs as ECB holds rates

• ECB holds rates, as expected
• US to release Core PCE Price Index

The euro is having a quiet day. In the European session, EUR/USD is trading at 1.0547, down 0.15%.

ECB holds rates at 4.0%

There wasn’t much drama leading up to the ECB rate decision on Thursday, as a pause in rates was widely expected. Still, the move was highly significant as it broke a streak of 10 straight rate hikes. The ECB began the current rate-tightening cycle in July 2022 and this marks the first pause of the campaign.

The ECB doesn’t want to give the impression that rates have peaked, since if inflation were to change directions and move higher, the central bank could be forced to raise rates which would mean a loss of credibility in the eyes of investors. ECB President Lagarde stressed after the meeting that a pause did not mean rate cuts were coming next, saying a discussion on cuts is “totally totally premature”. Lagarde reiterated that the ECB’s pause “doesn’t mean to say that we will never hike again.”

The euro’s reaction to the ECB pause was muted, which really was not a surprise, as the decision was widely expected. The euro posted slight losses following the ECB announcement and is almost unchanged on Friday. Will the markets fall into line with Lagarde or will speculation grow that the ECB will trim rates sometime in 2024? At the September meeting, the ECB signaled that rates had peaked, and further rate hikes would run the risk of tipping the weak eurozone economy into a recession.

The US wraps up the week with the Core PCE Price Index, which is considered the Fed’s preferred inflation gauge. The index is expected to rise to 0.3% m/m in September, after a 0.1% gain in August. On an annualized basis, Core PCE Price Index is projected to dip from 3.9% to 3.7%, which would be the lowest reading since May 2021.

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EUR/USD Technical

• 10574 is a weak resistance line, followed  by resistance at 1.0636
• 1.0531 and 1.0469 are providing support

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