EUR/USD Exchange Rate Drops Below 1.153 as DBS Group Sees ECB Advantage
The EUR/USD exchange rate dropped below 1.153 on Monday, September 14, but this doesn't necessarily mean bearish expectations have been realized. According to DBS Group, the true advantage of the euro is only just starting to be priced in.
The European Central Bank (ECB) raised its key interest rates by 25 basis points on September 10, with the deposit facility rate increasing to 2.50%, the main refinancing rate to 2.65%, and the marginal lending rate to 2.90%. This marks the second rate hike this year.
ECB President Lagarde emphasized that the Governing Council views the energy shock as a threat to price stability, rather than seeking to offset it through slower growth. The upward revision of both inflation and growth paths indicates that the ECB is taking a more hawkish stance.
The Federal Reserve's (Fed) policy meeting on September 15-16 will be closely watched, with market pricing already leaning towards a 25-basis-point hike. DBS Group believes that the euro enjoys a subtle yet logically sound advantage this week, centered not on the sheer number of rate hikes but on the ECB's institutional credibility in bringing inflation back to its target.
The EUR/USD exchange rate has been trending higher since August from relatively low levels, briefly reaching an intraday high around 1.171 before entering a period of pullback and consolidation in September.