Published on 26.01.2023 10:42

The Euro remains comfortably above the 1.09 mark against the US dollar as we get ready to enter the |European trading session after a strong round of economic data yesterday from Germany all but ensures a 50-basis point rate hike from the European central bank next week.

Germany’s IFO Business Climate Index hit the market at 90.2 for January which was in line with analysts’ expectations and well up on the 88.6 recorded last month, but the Current Assessment eased from 94.4 to 94.1against consensus for a figure of 95.0 The IFO Expectations also came in higher than analysts expected at 86.4 vs predictions for a number of  85.0 and also well above last month’s figure of 83.2 Following the data release, IFO Economist Klaus Wohlrabe noted that “the German economy is starting the year with cautious optimism.”

Also helping the Euro were ECB Governing Council member Gabriel Makhlouf who became the last policymaker from the European central bank to back a 50 bps rate hike ahead of the one-week blackout before the interest rate decision.

"We need to continue to increase rates at our meeting next week – by taking a similar step to our December decisions," he said, adding the central bank will need to increase rates again at the March meeting.

Looking further ahead today, and with no major economic news due out of Europe, the main drivers of the EUR/USD currency pair will be the release of the Gross Domestic Product (GDP) report for the fourth quarter by the Bureau of Economic Analysis which is expected to show the US economy expanded at an annualized rate of 2.6%, as per market expectations, after the 3.2% expansion recorded in the third quarter's GDP report.

Any surprise to the upside of the US GDP data could revive bets for a prolonged policy tightening by the Fed and possibly larger rate hikes which could prompt some near-term support for the US dollar.

From the other side, a weaker-than-expected reading should be enough to reaffirm bets that the US central bank will pivot to a somewhat a less hawkish stance regarding rate rises and exert additional downward pressure on the US Dollar and allow the EUR/USD pair to push above the 1.1000 level.


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