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EUR vs ECB: Euro resumes rally as central banker warns of larger rate hikes

By Adrian Holliday

13:05, 25 November 2022

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In this article:
1.07944 USD
-0.01164 -1.070%
1.20565 USD
-0.01727 -1.410%
US Dollar Index
102.6431 USD
1.248 +1.230%
131.218 USD
2.474 +1.920%

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Schnabel in Cernobbio, Italy, April 2022
Isabel Schnabel attends the 33rd Ambrosetti Workshop On Economics and Finance; could tight price caps fuel eurozone inflation higher? – Photo: Getty

Berlin and Bonn got a Black Friday lift this morning: Germany’s economy grew more in the third quarter than thought, up 0.4% quarter-on-quarter, dampening recession fears and giving EUR/USD a 0.12% bump.

Retailer supply problems also eased slightly, the German IFO Institute survey said, but there was more worry about the coming months as winter energy consumption soars.

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Recession risk versus inflation risk – EUR and the ECB look set for end-of-year volatility

Schnabel sets out her stall

The eurozone’s engine room – German manufacturing industry is bigger than France and Italy’s combined – is still scrambling to secure alternative energy supplies.

German manufacturing output up to 2022 compared to European neighbours; see Macrotrends

Yesterday German ECB board member Isabel Schnabel told a London conference that the ECB has less room for smaller rate hikes – in her view. 

Schnabel is a known hawk though not cut from the same mould as Netherlands’ Klaas Knot or compatriot Dr Joachim Nagel. But she is clearly worried about any suggestion that eurozone inflation will ‘quickly fall away’. 

FX strategist and finance consultant at Keirstone, Francis Fabrizi 

  • EUR/USD failed to reach the 1.0500 resistance level yesterday and retreated back to 1.0400 says Fabrizi. “Price is still indecisive this morning, however it is still holding above the 1.0400 support level.”
  • “If price remains above this level, it is possible it will attempt to reach 1.0500. I believe we will see price fall towards 1.0345 before pushing higher. 
  • “1.0500 remains a key level which will indicate whether price is ready to make a bullish reversal if a break above this level occurs, or continue its bearish trend if it is rejected again.”


“Many fiscal measures that are popular among the electorate, such as tight price caps or broad-based subsidies, risk fuelling medium-term inflation further,” she also said yesterday.

This is a clear dig at Germany’s €200bn energy support package which some argue distorts and amplifies Germany’s position – ‘Germany first’ – though Italy, France and Spain also operate price caps, in different ways. 

German gas issues

Larger rate hikes may support EUR. FX Rabobank analyst Jane Foley says net EUR long positions continue to grow and “are now three times larger than their levels in mid-October”. 


131.22 Price
+1.920% 1D Chg, %
Long position overnight fee 0.0058%
Short position overnight fee -0.0145%
Overnight fee time 22:00 (UTC)
Spread 0.033


158.15 Price
+0.500% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0001%
Overnight fee time 22:00 (UTC)
Spread 0.026


1.08 Price
-1.070% 1D Chg, %
Long position overnight fee -0.0092%
Short position overnight fee 0.0030%
Overnight fee time 22:00 (UTC)
Spread 0.00011


0.69 Price
-2.190% 1D Chg, %
Long position overnight fee -0.0065%
Short position overnight fee 0.0014%
Overnight fee time 22:00 (UTC)
Spread 0.00020

“The outlook has been boosted by the hawkish position of the ECB and its 75 bps rate hike on Oct 27, by last month’s fall back in European gas prices and by the withdrawal of Russian troops from Kherson. 

“However, market attention is turning to where gas will come from for winter 2023.” And that is work in progress as German industrial policy works to detach itself from Moscow’s clutches. 

For now the market is pricing 61bp of hikes on 15 December says ING – it expects 50bp. Clearly, the 50bp versus 75bp continues to run. 

How long will an end-of year EUR run?

“For EUR/USD, it still looks like the big dollar story is dominating. We cannot rule out a further correction into the 1.05-1.06 region but would see these as the best levels before year-end. 

“These levels could be seen next week should Fed speakers or November US jobs data prove the catalyst.”

Meantime, watch Wednesday’s key Eurozone inflation reading plus new unemployment numbers on Thursday. “Any sign of the labour market slowing will also be taken into account at the next policy meeting,” says ING’s James Knightley. 

BoE hawks lean in

Yesterday saw more messaging from three Bank of England officials – inflation remains a problem and more monetary tightening is needed to wrest it southwards. 

“Catherine Mann and Dave Ramsden,” says MUFG Bank’s Head of Research, Derek Halpenny, “have leaned hawkishly in general and both expressed concerns over the risk of inflation becoming entrenched and wage growth accelerating. 

“The speech and comments resulted in some mild upward pressure on rates with the implied terminal rate now drifting over 4.60%.” 

Nearing 1pm DXY was up 0.26% at 105.81; EUR/USD was 0.17% lower at 1.0385 while GBP/USD was 0.18% lower at 1.2093; USD/JPY was 0.48% higher at 139.25.

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
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