The policymakers of the European central bank are concerned about the soaring prices in Europe. They see inflation to stay above the central bank’s target for an extended period.

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Growth concerns should not prevent an increase interest rate, shows the accounts of the ECB’s September policy meeting.

The response of the central bank to the surging inflationary pressure ought to be as forceful when the inflation was lower as the depreciation of the euro might increase further and the lower exchange rate provides limited support to the economic situation with supply issues and shortages.

In September the ECB raised rates by higher-than-expected 75bps and signaled further hikes in the coming months as the market was already pricing in another 75bps interest rate hike in October.

There are little changes in the rising money supply, foreign exchange reserve or in the central bank’s balance sheet to support the euro for the moment. Most of the data are pointing to further rises which pressures the currency. Loans to the private sector also increased with the elevated rates.

The Japanese government recently intervened in the currency market by selling dollar reserves which brought the rate USD/JPY to tumble while the dollar seemingly recovered the drop against the yen, staying in a balanced price range around the bracket highs on the daily interval. Therefore, changes in the reserve or money supply might be possible in case of a further drop in the value of the euro against the dollar.

The euro increased its value against the dollar in five consecutive sessions while yesterday’s currency fell by about 1% by resistance around the lower value extreme of the Year’s developing value area.

The monthly interval gives a bearish bias by the imbalanced structure of the fiber rate. The dollar seemingly targets the swing lows as the rate is down by about 0.3% in today’s session and might find supportive buyers around the $0.98 handle which is confluent with a prior VWAP close level.

The interest rate gap between the FED and the ECB might widen as the cycle of the hikes from Europe’s central bank seemingly leading investors to doubt it could combat the soaring inflation which brings pressure to the euro.

European retail sales fell and the PMIs showing a decrease in the GDP, worsens the concerns of a possible recession in combination with the energy crisis which could deepen in the winter, pressure the euro additionally, presumably. 

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