Euro Lower As ECB Hints At Pause In Rate Hikes

(RTTNews) - The euro declined against its major counterparts in European deals on Thursday, as the European Central Bank raised interest rates by 25 basis points, but hinted at a pause in the tightening cycle as the bank estimates that the current level of interest rates if maintained for long would ensure a timely return of inflation to the target.

The Governing Council, led by ECB President Christine Lagarde, increased the main refinancing rate, or refi, to 4.50 percent.

The deposit facility rate was hiked to 4.00 percent and the lending rate to 4.75 percent.

Based on its current assessment, 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 ECB said.

"The Governing Council's future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary," it added.

The ECB affirmed that it would continue to follow a data-dependent approach in determining the appropriate level and duration of the restriction.

The central bank significantly lowered the euro area growth projections citing the increasing impact of its policy tightening on domestic demand and the weakening international trade environment.

The euro area economy is now expected to expand by 0.7 percent this year, 1.0 percent next year and 1.5 percent in 2025.

The ECB Staff raised the inflation projection for this year to 5.6 percent and that for next year to 3.2 percent. The forecast for 2025, however, was cut to 2.1 percent.

The euro fell to a 3-day low of 156.83 against the yen and a 2-day low of 0.8577 against the pound, from yesterday's close of 158.15 and 0.8590, respectively. Should the euro falls further, it is likely to test support around 154.00 against the yen and 0.84 against the pound.

The euro dropped to a 3-1/2-month low of 1.0653 against the greenback and a 1-1/2-month low of 1.6525 against the aussie, from Wednesday's close of 1.0729 and 1.6706, respectively. Next near term support for the euro is likely seen around 1.04 against the greenback and 1.61 against the aussie.

The euro weakened to more than a 2-month low of 1.4406 against the loonie and more than a 5-week low of 1.7992 against the kiwi, from yesterday's closing values of 1.4535 and 1.8130, respectively. The euro is likely to challenge support around 1.41 against the loonie and 1.72 against the kiwi.

The euro declined to a 3-day low of 0.9538 against the franc, from a 2-week high of 0.9598 seen at 8:15 am ET. The pair had finished Wednesday's deals at 0.9587. The euro may find downside target around the 0.94 level.