The euro’s two-day rally came to a halt as investors awaited the European Central Bank’s (ECB) response to the gathering storm of high inflation and poor growth. According to statistics, the top cryptocurrency plummeted to $39,000 during the Asia hours, virtually reversing Wednesday’s 8% rise brought on by US President Joe Biden’s crypto executive order.
According to TradingView, the euro-dollar exchange rate (EUR/USD) has flatlined at around 1.1065, having bounced almost 200 pips (typically the final decimal place of price) in the previous two days. Historically, the Federal Reserve (Fed) has had the most influence on cryptocurrency markets, whereas ECB rate decisions have had little to no impact. According to one observer, Thursday’s choice is critical.
The Fed will raise interest rates, so this will happen regardless of how the US economy moves. The most significant effect at the moment may be the European Central Bank’s hawkishness this week, Griffin Ardern, a volatility trader at crypto-asset management firm Blofin, agreed. Markets have lately reduced their expectations for the ECB to tighten policy since the protracted Russia-Ukraine conflict is projected to drag the European economy into a recession marked by rising inflation.
According to Refinitiv data, money markets had priced in an ECB interest rate hike of fewer than 15 basis points in December, versus a 30 basis point boost when Russia invaded Ukraine on Feb. 24. According to Chris Vecchio, strategist at DailyFX, the impending possibility of a European liquidity crisis may cause the ECB to postpone policy tightening.
There is a non-zero risk that European and US sanctions on Russia’s Central Bank will cause a liquidity constraint for European banks that will last for the foreseeable future. As a result, this may provide the justification ECB officials need to justify keeping their asset purchase programme in place into 3Q ’22, and interest rates lower for longer, Vecchio wrote in an email. According to FXStreet, most investment banks expect the ECB to maintain its current monetary stance while taking a more flexible posture on inflation.