Euro gains ground as first interest rate increase in 11 years is on the cards

FXOpen

As yesterday's trading day progressed, the Euro rose in value by 0.5%, which is very interesting considering the overall economic conditions across the Eurozone.

The European Central Bank (ECB) has this week made a milestone decision in its plans to raise interest rates for the first time in 11 years.

The ECB is preparing to increase interest rates by 25 basis points at its forthcoming meeting in July, and it may well consider another interest rate rise in September, but the size of that is yet to be determined.

With no indication given by Philip Lane, the Chief Economist of the ECB, speculation is now abound that the ECB may raise interest rates by as much as 50 basis points in September.

Many central banks in Western markets have been engaged in the practice of effecting interest rate increases over the past few months as a measure to attempt to curb spending and counteract inflation.

Although this is a widely recognized technique, it can have the effect of creating a low level of confidence in a specific economy if the interest rates continue to rise as it squeezes those with exsiting borrowings as well as demonstrating an inflationary climate.

Rather interestingly, the interest rate increases that the United States Federal Reserve Bank has invoked have not affected the strength of the US Dollar which has been performing well recently, and the Euro's increase in value over the past day has shown that the Euro is following a similar path of relative strength after the central bank announced an interest rate rise.

Whilst Britan and the United States have been subject to interest rate rises, the Eurozone has not until now, and this being the first in over a decade is of interest, yet the Euro responded positively.

By contrast, Japan, whose economy was not disrupted during 2020 and 2021 as the country did not invoke any lockdowns, and whose central bank has not implemented any interest rate rises, is a different matter altogether.

The Yen is at a 24 year low, with some commentators considering the Bank of Japan's 'loose monetary policy' to be causing a lack of confidence.

Let's not forget that in 1986in the United Kingdom, the inflation rate was almost 5% and the interest rate was almost 11%, yet that was one of the most buoyant periods in recent history, and the boom time of the 1980s saw many people amass wealth, start new businesses and own their own homes for the first time.

The 1980s is often portrayed as a decade of conspicuous consumption and prosperity, which it indeed was, however the interest rate was higher by far than it is today, and inflation was not low either, yet it was not a barrier to financial prosperity.

Historic data is an interesting basis for analysing current market conditions, and this is certainly a case in point.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Latest from Financial Market News

Is the UK really in a recession? Perhaps 2024 data will be different Weekly Market Wrap With Gary Thomson: US INFLATION, GBP/USD, GOLD, BITCOIN EURGBP continues to be suppressed during February. Will it rise again? Weekly Market Wrap With Gary Thomson: S&P 500, CAD, GBP/USD, AMZN GBPUSD Displays Volatility as Pound Demonstrates Low Performance

Latest articles

Indices

Nvidia's Successes Helps S&P 500 Price Reach Its All-time High

Yesterday, the price of the S&P 500 stock index rose to record closing highs on Thursday. Moreover, such a growth rate (+2.11% per day) has not been observed for 13 months. Reasons for Extremely Bullish Sentiment: → Nvidia's

Forex Analysis

Market Analysis: AUD/USD and NZD/USD Grind Higher Steadily

AUD/USD is moving higher and might rally if it clears 0.6600. NZD/USD is also rising and could extend its increase above the 0.6220 resistance zone. Important Takeaways for AUD/USD and NZD/USD Analysis Today· The

Forex Analysis

Commodity Currencies Strengthen after the FOMC Minutes Publication

The fundamental data of recent trading sessions contributed to a slight strengthening of commodity and European currencies. Thus, the AUD/USD pair, after forming a bullish engulfing combination, managed to confidently gain a foothold above 0.6500. The pound/US

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65.68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.