ECB hikes rates as expected, € loses ground
Yesterday, the ECB announced a 75bp interest rate hike for a second consecutive month. The 'out of character' increase was expected, but does go against some economists views on how they should be tackling high inflation in a stumbling economy. The current inflation target is 2% and this is now expected to be achieved in 2-3 years.
Whilst ECB President Lagarde suggested they would be taking it "meeting-by-meeting" to determine rate hikes, the consensus is for the aggressive rates to continue. This news generally is bullish for a currency and has shown to be that way all year. However, it's the burden on the countries, businesses and consumers that are and will be suffering from higher interest rates that has worked against the Euro this time round.
Elsewhere, the US economy returned to growth for the first time this year, lifting it out of a technical recession. This news was welcomed on the market, but caution has been advised. The European energy crisis, economic turmoil in china and further interest rate hikes all mean a 'real' recession is on its way early 2023. A softening housing market, slowing retail sales and a continued strong $ are already contributing to a weaker overall economy.
Back in the UK and it has been announced that London remains firmly at the top of the world's foreign exchange trading market. The daily turnover in the currency market now sits at a record $3.75 trillion, with 38.1% of it being traded through banks and other financial firms in London. The US lies in second place at 19.8% and then Singapore third at 9.7%. An enormous 90% of currency trading involves the $. 34% includes the € and just 19% includes the £.