The Yen won as the Bank of Japan announced its policy decision and stated it will aim to control the yield curve and purchase 10-year bonds at 1% every business day. USD/JPY falls to trade around the 139 level, after jumping to almost 142 on the decision. Both EUR/USD and GBP/USD resumed their decline today following strong US growth data released yesterday that led both pairs to drop to 1.0994 and 1.2826, respectively. EUR/USD is currently trading at 1.0970 and GBP/USD trades just below the 1.28 level.
The ECB hiked interest rates yesterday in line with expectations, delivering a 25-basis points hike, bringing the deposit rate to 3.75% from the previous 3.50%. ECB’s President Christine Lagarde confronted how tighter credit conditions in Europe are driving the euro-zone economy to the ground, creating a challenge for the central bank on whether to repeat a similar hike in September. As Lagarde gave a downbeat assessment of the “deteriorated” economic outlook and stated that the Governing Council is open minded on another potential rate hike, markets don’t seem as convinced as before for the next meeting.
Unlike the Fed’s view that the US might “dodge” an economic downturn, ECB officials are showing a more worried tone as they understand what the current monetary policy campaign is doing to the economy and how it is affecting growth. At this point, measuring the growth impact is becoming key as the central bank evaluates how much more tightening is needed to bring inflation lower.
