Euro near 17-month low as ECB December hike odds build
In short
- On 29 October 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 5–8 October, 64 of 73 economists expect a quarter-point hike at the 16–17 December 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 = £0.8358 or $1.1216.
What happened
On 29 October 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 5–8 October, 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, UK 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). Closer to home, the Bank of England meets on Thursday 5 November, and a rise from 3.75% to 4.00% is expected.
What it means for you
The maths: on a £100,000 variable-rate loan that tracks the policy rate one-for-one, a quarter-point rise means about £250 more interest a year, or nearly £21 a month. If you are exchanging money, £1,000 buys €1,196 at this morning’s rate.
See also: live UK and European stocks and UK 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 16–17 December.
Sources: Reuters · FXCM · TradingKey · TMGM · IC Markets · HawkValue data at 8:06 a.m.
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