Euro gives back gains after ECB’s interest rate decision

THE euro gave back earlier small gains on Thursday (Mar 16) after the European Central Bank (ECB) stuck to its plan for a half-percentage-point interest rate increase despite recent market volatility.

However, ECB said the future rate path would depend on incoming data.

The central bank has been raising rates at its fastest pace on record to curb high inflation, but a rout in global markets since the collapse of Silicon Valley Bank in the US last week had threatened to upend those plans at the last moment.

The euro fell as much as 0.25 per cent after the ECB’s decision, having traded around 0.2 per cent higher before the announcement. It was last flat on the day at US$1.05775.

Antoine Bouvet, senior rates strategist at ING, said the promised 50-basis-point rate hike “sends a strong message on inflation, but the statement is peppered with reference to market tensions. This means the ECB will be data-dependent.”

Currency markets, like markets more broadly, were calmer on Thursday after Credit Suisse said it would borrow up to US$54 billion from the Swiss National Bank to shore up liquidity and investor confidence.

The bank’s shares plunged as much as 30 per cent on Wednesday.

That stability also helped the Swiss franc to strengthen, and the US dollar at one point fell more than 1 per cent against the franc, to 0.9232, reversing some of its 2.15 per cent surge on Wednesday – the largest daily gain since 2015.

“We already saw a recovery since the SNB stepped in to offer its reassurances. I presume that we’ll continue to hear more reassurances about the safety of the banking system and I would expect that would come through with the ECB,” said Joel Kruger, market strategist at LMAX Group.

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Elsewhere, the safe-haven Japanese yen remained in favour even as markets calmed a little.

The US dollar was last down 1.17 per cent against the yen at 131.92, around a 4 per cent slide from the nearly three-month high that the US currency hit on March 8 before markets entered their tailspin.

Sterling was steady at US$1.2046, and the US dollar index, which tracks the unit against six main peers, was down 0.1 per cent at 104.5. REUTERS