European Central Bank Shifts Footing In The Interest Rate Battle — Don’s Daily Brief

by | Feb 2, 2023

The Bank of England (BOE) and the European Central Bank (ECB) both hiked 50 basis points.

But there’s a big change in footing between the big three central banks: The BOE, the ECB and the US Federal Reserve.

Everybody’s reading the Fed’s statement as a little more dovish.

The BOE’s statement announced they are backing off. They are conceding either they think recession is a bigger risk or they’re allowing inflation to run a little bit more.

On the other hand, the ECB’s statement was the most hawkish of the three. That’s kind of changed the interest rate risk parity between currencies.

I think that might give the Euro a tailwind over the next couple of months. I don’t think it will last and I think the Federal Reserve will ultimately come out and drop the hammer.

► But right now the bias is towards the Euro.

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