Euro skids to two-week trough after ECB decision
The euro skidded in European trade on Friday to a two-week trough against the US dollar, sharpening losses for the sixth straight session, and about to mark the second weekly loss in a row as the US-European interest rate gap widened after the European Central Bank cut interest rates for the fourth time this year.
The ECB backed off its strict position on policies and is clearly now leaning towards monetary easing to support the economy.
Following the meeting, the odds of an ECB interest rate cut in January surged, with analysts expecting the ECB mainline interest rate to hit 1.75% by the end of 2025.
The Price
The EUR/USD fell 0.15% to $1.0453, the lowest since November 26, with a session-high at $1.0481.
The pair closed down 0.3% on Thursday, the fifth loss in a row following the European Central Bank’s policy meeting.
Weekly Trades
The EUR/USD pair is down 1.1% so far this week, about to mark the second weekly loss in a row.
The ECB
The European Central Bank voted to cut interest rates by 25 basis points today to 3.15%, the lowest since February 2023, the fourth ECB interest rate cut this year.
It said the decision to cut interest rates is based on updated assessment of inflation forecasts and inflation dynamics, and asserted its reliance on data at every meeting to decide on policies.
The ECB clearly hinted at more interest rate cuts in the short term, while expecting core inflation to stabilize at 2%, matching official targets.
Lagarde
ECB President Christine Lagarde said the decision to cut interest rates for the fourth time this year comes as inflationary pressures receded and economic activities softened.
She said there were arguments for a 0.5% rate cut, but eventually all settled on a 0.25% rate cut.
Lagarde added that neutral interest rates will be discussed when they’re approached.
European Rates
Following the meeting, the odds of a 0.25% ECB interest rate cut in January rose from 35% to 55%.
Now markets expect the ECB interest rate to decline to 1.75% by the end of 2025.
Interest Rate Gap
The US-Eurozone interest rate gap rose to 160 basis points this week, in turn putting more pressure on the euro against the dollar.
Yen about to mark biggest weekly loss since September
The Japanese yen fell in Asian trade on Friday on track for the fifth daily decline in a row against the dollar, plumbing two-week lows and about to mark the largest weekly loss since September, as the odds of a Japanese interest rate hike next week receded.
According to the latest media report, the Bank of Japan will likely maintain interest rates unchanged, and it’s not in a hurry to normalize policies.
The Price
The USD/JPY rose 0.7% today to 153 yen per dollar, the highest since November 27, with a session-low at 152.45.
The yen lost 0.1% against the dollar on Thursday, the fourth loss in a row, under pressure from higher US yields.
Weekly Trades
The yen is down 2.1% so far this week against the dollar, about to mark the second weekly loss in a row, and the heftiest since September.
Media Reports
According to Reuters, five different sources said the Bank of Japan prefers to maintain interest rates unchanged next week as they continue to analyze risks abroad and wages forecasts.
The sources said there’s no consensus in the BOJ about the final decision, with some still estimating that Japan has fulfilled the conditions of raising interest rates in December.
Japanese Rates
Following the report, the odds of a 0.25% interest rate hike by the BOJ next week tumbled from 65% to 25%.
Gold tumbles 2% away from five-week high
Gold prices fell on Thursday as the dollar rose against a basket of major rivals, giving up five-week highs scaled on Wednesday.
US producer prices rose 3% y/y in November, above estimates of 3.6%, and up from a revised 2.6% increase in October.
Core prices, excluding food and energy, rose 3.4%, above estimates of 3.2%, and up from 3.1% in October.
US unemployment claims rose to 242 thousand in the week ending December 7, the second weekly increase in a row, above estimates of 221 thousand, and up from 225 thousand in the previous reading.
Earlier data showed US consumer prices rose 2.7% y/y in November as expected, up from 2.6% in October.
Therefore the Federal Reserve will likely continue to cut interest rates at upcoming meetings, with the odds of a 0.25% interest rate cut next week standing at 86.1%.
Otherwise, the dollar index rose 0.3% as of 20:39 GMT to 107.01, with a session-high at 107.01, and a low at 106.3.
On trading, gold spot prices fell 1.8% to $2706 an ounce as of 20:40 GMT.