Euro Selloff Raises Doubts About Future Rate Hikes

Financial stress in Europe has led to growing doubts about whether central banks like the European Central Bank (ECB) can hike rates as aggressively as thought. According to Deutsche Bank analysts, this uncertainty is weighing on the Euro.

The analysts describe EUR/USD weakness as European spreads widened and bank stocks sold off. This has caused the Euro to fall sharply against the Dollar, with markets questioning whether the ECB could deliver another rate hike this year.

Tighter financial conditions would do some of the work for them in bringing down inflation, but the selloff also raised doubts as to whether the economy could cope with another hike. As a result, the number of further hikes priced by December's meeting fell -6.1bps on the day to 23.5bps.