According to our analysis EURUSD moved 25 pips on European Central Bank (ECB) Interest Rate Decision data on 14 September 2023.

EURUSD (25 pips)

Charts are exported from JForex (Dukascopy).

On the date of September 20, 2023, the ECB announced a series of significant monetary policy decisions and shared key insights into the Eurozone's economic outlook:

ECB's Determination to Tackle Inflation:

  • The ECB expressed its concern over persistently high inflation while acknowledging a decline in inflation rates. Despite this decline, inflation levels remained above the ECB's target.

  • The central objective of the ECB was to ensure that inflation returns to its medium-term target of 2% promptly.

Interest Rate Increase:

  • In a move to address inflation concerns and demonstrate its commitment to this target, the ECB decided to raise its three key interest rates by 25 basis points. This action aimed to tighten monetary policy.

  • The decision to increase interest rates was grounded in the ECB's assessment of inflation prospects, economic and financial data, underlying inflation dynamics, and the efficacy of monetary policy transmission.

Revised GDP Growth Projections:

  • The ECB provided updated macroeconomic projections for the Eurozone. These projections indicated a downward revision in GDP growth expectations.

  • Economic growth in the Eurozone was projected to be modest, with expectations of a 0.7% expansion in 2023, 1.0% in 2024, and 1.5% in 2025. This revision was likely due to tightening financial conditions and challenging international trade dynamics.

Revised Economic Projections:

  • The ECB provided updated macroeconomic projections for the Eurozone, projecting average inflation rates of 5.6% in 2023, 3.2% in 2024, and 2.1% in 2025. These projections reflected upward revisions for 2023 and 2024 primarily due to higher energy prices, and a downward revision for 2025.

  • Even though some indicators pointed to easing, underlying price pressures in the Eurozone were considered high.

Market Reaction and Currency Impact:

  • In response to these developments, the EUR/USD currency pair experienced a notable decline. This movement was influenced by the ECB's revised GDP growth projections, which suggested a potentially weaker economic outlook for the Eurozone.

  • Lower GDP growth forecasts raised concerns about economic health, leading to speculations that the ECB might be less inclined to raise interest rates, thus diminishing expectations of higher returns on Euro-denominated assets. This perception made the Euro (EUR) less attractive to investors, resulting in a depreciation of the currency against the US Dollar (USD).

Future Monetary Policy and Flexibility:

  • The ECB indicated that the current interest rate levels, if maintained over an adequate period, could significantly contribute to achieving the inflation target.

  • Future ECB decisions would ensure that key interest rates remained at sufficiently restrictive levels for as long as needed.

  • The ECB would continue to adopt a data-dependent approach to determine the appropriate level and duration of these restrictions based on evolving economic and financial data, underlying inflation dynamics, and the strength of monetary policy transmission.

In conclusion, the EUR/USD's decline can be attributed to the interplay of the ECB's revised GDP growth projections, interest rate expectations, and investor sentiment. Economic projections played a pivotal role in shaping market reactions, ultimately contributing to the observed downward movement in the EUR/USD currency pair.

Source: https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230914~aab39f8c21.en.html

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