Euro near 17-month low as ECB December hike odds build
In short
- On October 29 the euro hit its lowest level against the dollar in 17 months, and the ECB left its deposit rate at 2.5%.
- In a Reuters poll taken on October 5–8, 64 of 73 economists expect a quarter-point hike at the December 16–17 meeting.
- On Monday Brent fell 8% to $104.33. Energy is the main risk for euro-zone inflation, which was 3.8% in September.
Whether the ECB hikes in December depends mostly on the price of energy, and on Monday Brent fell 8%. At 8:06 a.m. Sofia time, HawkValue’s rate was €1 = $1.1216.
What happened
On October 29 the ECB left its deposit rate at 2.5% and its main refinancing rate at 2.65%. The same day the euro fell to its lowest against the dollar in 17 months. Euro-zone inflation was 3.8% in September, with energy prices up 18.8% on the year.
In a Reuters poll taken on October 5–8, 64 of 73 economists expected a 25 basis point hike in December, and 58% see the deposit rate peaking at 2.75%. After the meeting, three ECB policymakers told Reuters that 2.75% in December is “highly likely” unless energy prices fall sharply.
On Monday oil moved in exactly that direction: Brent fell 8.01% to $104.33 a barrel on US-Iran talks mediated by Qatar. In October, though, Brent had risen 14.6%. Growth is weak: in the third quarter Germany grew 0.2% and France shrank 0.1%.
European stocks ended Monday higher: DAX +0.6%, Euro Stoxx 50 +0.7%, FTSE 100 +0.3% (HawkValue data at the close).
What it means for you
The maths: a €100,000 variable-rate loan that tracks the ECB rate one-for-one costs about €250 more a year after a quarter-point rise, close to €21 a month. For a dollar earner, €1,000 (a hotel bill, say) costs $1,121.60 at this morning’s rate, and $1,000 buys €891.60.
See also: live US and European stocks and US gold prices. Earlier: ECB holds at 2.5% as inflation hits 3.8%.
Bottom line
Economists are betting on a December hike, while oil moved the other way on Monday. Which one wins will show in the inflation data and in the ECB decision on December 16–17.
Sources: Reuters · FXCM · TradingKey · TMGM · HawkValue data at 8:06 a.m.
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