The euro exchange rate gained new support from the European Central Bank's (ECB) policy announcement yesterday. EUR/USD corrected, but maintained its position within its highest range since June.
The EUR/GBP pair even shot up to its highest level in four weeks. As the news was written in the Asian session on Friday (16/December), the two currency pairs circulated in the range of the 1.0640s and 0.8720s.
It was happened over a period of time, although the analysts did not explain how long it would take. Interestingly, the ECB has pegged a more optimistic forecast for economic growth.
That is even though inflation and interest rates remain high. The latest Eurozone growth projections are at 0.5% for 2023 and 1.9% for 2024.
ECB said that Economy will Only Slow Down
In other words, the ECB signaled that the economy would only slow down sharply instead of falling into a prolonged recession. The market reacted positively to a series of ECB announcements.
That is why; the euro strengthened against most other currencies in the forex market. However, some analysts think the ECB is overly optimistic due to this current condition.
This is more optimistic than the analysts growth forecast as said by Carsten Brzeski, Head of Global Macro at ING Bank. Meanwhile, the growth outlook remains relatively optimistic.
While that occurred, risks are rising that the ECB pushes the Eurozone economy further into recession with each new rate hike. Vitor Constâncio as a former ECB Vice President shared his thought.
ECB Decision will Trigger more Hawkish Policies
Vitor stated that the central bank's hawkish stance by calling it "bad news for the Euro-Area outlook". He thinks the ECB's decision leads to excessively hawkish policies.
That which could exacerbate the upcoming recession. Robin Brooks, Chief Economist of IIF, also warned some possibilities due to the continued rate hike.
This situation annot be the ECB's goal. Putin waged an energy war that drove inflation. Don't let people keep raising Interest rate along with that inflation.
Elsewhere, The precious metal turned bearish and recorded weakness in Thursday (15/December) trading. Gold plummeted to 1776 after the Fed's hawkish remarks during yesterday's rate hike.
Gold is Under a Pressure
As a result of the situation above, gold came under pressure and ended trading with a decline of 1.70 percent. Before, the price of these commodidites was still holding at $1808 per ounce in wednesday (14/December) evening trading session.
Spot gold is bullish at $1807.77 an ounce, where the gold futures are at $1820.10. The following XAU/USD chart shows the movement at $1809.57 level.
That occured after a gain of more than 1% in yesterday's trade. Released at 0.1%, the America’s monthly CPI grew below the prediction made by analysts of 0.4%.
The core CPI also failed to meet market expectations where these were by a ratio of 0.2% versus 0.3%. This lower than expected data catapulted gold prices to a 2.4%.
Vice Versa, Dollar was Lower than Expected
It means that the precious metal jumps to a five-month high. In contrast, the US Dollar sprawled to a low position in six month after the release of the data.
The gold price correction that occurred today is suspected as a profit-taking action after yesterday's big rally. Craig Erlam as an analyst from OANDA said there is growing confidence for the Fed to end rate hikes.
That is especially after the United States inflation cooled further. The market is just waiting for the central bank in that country to confirm it Where then people may take a further action.
If the Fed gives a softening tone today (in the FOMC meeting), then People will see gold prices shoot above $1810. Furthermore, it may score its best rally of the year as said by Erlam.
