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Interest rate decisions keep euro under heavy pressure

Interest rate decisions keep euro under heavy pressure

Last week provided several noteworthy moves amongst the FX majors. The euro was under sustained downward pressure, evidenced in the ground it lost against the dollar and sterling. Once again, a diverging interest rate outlook is the cause, with the ECB stating that rate hikes are very unlikely in the Eurozone next year – sterling and dollar continue to benefit from their respective central banks’ more hawkish tone amid a continued surge in inflation. 

In terms of figures, EUR/USD slumped from the midpoint of $1.14-1.15 down to $1.126 last week – its lowest level since July 2020. Elsewhere, EUR/GBP was unable to hold onto its 85p level, falling below the 84p mark for the first time since early 2020. It continued to fall to a low of 83.8p and opened again this morning near to this low. We saw less action from GBP/USD, with the pair confined for much of the week within the $1.34-1.35 trading band.

As we look ahead to this week, the minutes from the ECB’s and Fed’s most recent meetings will be key. We are likely to see the respective bodies highlight their diverging position on interest rates. 

Data-wise, US Core-PCE inflation will attract the most attention in the US, with November PMI’s from the US, Eurozone and UK being the other main data highlights this week. Traders will focus heavily on EUR given its recent weakening trend – the 83p mark is seen as a key support level for EUR/GBP.

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