Euro falls despite ECB hike, silver gains

The European Central Bank hiked interest rates by 75-basis points, meeting forecasts and the bank signalled that more rates hikes are on the agenda as inflation is at a record high in the currency bloc. The ECB lifted its inflation forecast for 2022 and 2023 to 8.1% and 5.5% respectively, this was not a total shock given the recent rise in energy prices. In relation to growth, things are a little more mixed looking because the central bank lifted this year’s GDP forecast to 3.1% from 2.8%, but the 2023 guidance was slashed to 0.9% from 2.1%. Even the 2024 forecast was trimmed from 2.1% to 1.9%. Rate hikes often take several months to trickle down to the economy, so next year the eurozone could be in a for higher rates, and a sharp falloff in growth, which would be the worst of both worlds. 

The US labour market is giving off mixed signals as the initial jobless claims reading was 222,000, its lowest level since June, but the continuing claims reading, hit a five-month high. The continuing claims report measures the number of ongoing claimants, so that figure paints a less rosy picture of the US jobs market. Jerome Powell, the Fed chair, expressed his desire to keep hiking interest rates until inflation is under control. Mr Powell stated that policy will be tightened until the job is done. The Fed swaps market is pricing in an 80% chance of the Fed lifting rates by 75-basis points this month, which would maintain its aggressive stance as rates were lifted by 0.75% in June and July. EUR/USD was in focus today because of the update from the ECB and the speech from Mr Powell, but overall, the dominance of the US dollar won out, and EUR/USD is down 0.4%. Stock markets in both Europe and the US are largely higher even though it seems that more rate hikes are on the horizon.    

Oil saw spike a volatility when the EIA report was released as the update showed that US oil stockpiles surged by 8.8 million barrels, while the consensus estimate was for a drop of 1.9 million barrels. Gasoline inventories increased by 333,000 barrels and the consensus estimate was for -1.9 million barrels. Initially WTI tumbled, but it has since bounced back into positive territory. Silver is enjoying a rally which is impressive given the ongoing concerns about global demand, not to mention the increase in the US dollar.