PoundSterlingLIVE - The Euro fell against the British Pound, U.S. Dollar and the majority of major currencies after the European Central Bank (ECB) raised interest rates but signalled it had reached the end of the hiking cycle.
The ECB said in a statement that it considers that "the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target."
"The Governing Council’s past interest rate increases continue to be transmitted forcefully," said the statement.
Economists at the central bank raised inflation forecasts for 2023 and 2024, a development that was telegraphed in a leak to the media mid-week and raised the level of the Euro.
But what was not telegraphed was that inflation forecasts for 2025 were lowered, a 'dovish' development for the Euro.
The ECB now projects inflation at 5.6% in 2023, 3.2% in 2024 and 2.1% in 2025.
Financing conditions are said to have tightened further and are "increasingly dampening demand, which is an important factor in bringing inflation back to target".
In another 'dovish' development for the Euro, ECB economists lowered their economic growth projections "significantly".
They now expect the euro area economy to expand by 0.7% in 2023, 1.0% in 2024 and 1.5% in 2025.
The EUR/USD exchange rate dropped half a per cent in the half-hour window following the announcement to 1.0668. The EUR/GBP fell 0.20% in the same window to 0.8585.
This left the Pound to Euro rate up at 1.1647.
The ECB also confirmed that it would continue to keep a watchful eye on the data when considering the potential for further hikes: "the Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction."
But by communicating it would enter a holding pattern at current levels confirms it would take a notable deterioration in Eurozone growth data dynamics to convince it to hike again.
"The ECB's communication is clear: today was the last hike in the current cycle," says Carsten Brzeski,
Global Head of Macro at ING Bank. "Looking ahead, a further weakening of the economy and more traction in a disinflationary trend will make it very hard to find arguments for yet another rate hike before the end of the year."
An original version of this article can be viewed at Pound Sterling Live
