Euro remains vulnerable after ECB keeps rates steady

The EURUSD pair fell further to 1.0720 Thursday after the European Central Bank decided to hold its Main Refinancing Operations Rate steady at 4.5%. The ECB was widely anticipated to keep its borrowing rates higher to maintain downward pressure on the consumer price inflation.

In the monetary policy statement, the ECB commented that restrictive financial conditions and interest rate hikes yet made are weighing on overall demand and pushing downward pressure on inflation. The ECB denied committing to any particular rate path and said it would remain data-dependent to determine how long interest rates need to remain restrictive.

In the press conference, ECB President Christine Lagarde warned that the economy is weak and risks to growth have tilted to the downside.

Lagarde added that labour market conditions are continuously easing, and demand for the manufacturing sector is weak. She is confident that inflation will decline to target next year, which is 2%.

The ECB chief didn’t provide a timeframe on when the central bank will start reducing interest rates.

Strong dollar

The strong US Dollar is also driving the weakness in the major currency pair.

The Dollar Index (DXY), which tracks the greenback’s value against six major currencies, hovers near more than a four-month high of around 105.20.

The appeal for the US Dollar has strengthened as traders push back market expectations for Federal Reserve rate cuts.

The Fed is expected to keep interest rates in the range of 5.25-5.50% at least till the September meeting, as the United States consumer price inflation for March turned out stronger than expected.

Meanwhile, the US Bureau of Labor Statistics (BLS) has reported hot annual core Producer Price Index (PPI) data for March. US core PPI grew strongly by 2.4%, from estimates of 2.3% and the prior reading of 2.0%.

(Source: OANDA)