The European Central Bank held interest rates unchanged on Thursday, as widely expected by the market. The deposit rate remains at 2.25%, following a rate hike in June. However, investors anticipate further increases in borrowing costs in the coming months as the ongoing conflict in the Middle East continues to fuel inflationary pressures, prompting the central bank to act to curb rising prices.
As tensions escalate near the Strait of Hormuz, international oil prices are once again approaching the $100 per barrel mark, reigniting concerns over war-driven inflation. Economist Oliver Rakau from Oxford Economics characterized this decision as a "hawkish pause," suggesting that current data slightly favors further policy tightening. This aligns closely with the ECB's June projections and current market pricing. Financial markets have already priced in additional moves, with traders expecting the ECB to complete its remaining rate hikes by February of next year. There is also a 60% probability of another rate increase by mid-2025.
Separately, the number of Americans filing for unemployment benefits last week fell to its lowest level since 1969, indicating that layoffs remain low in an otherwise stable labor market. The U.S. Department of Labor reported on Thursday that initial jobless claims for the week ending July 18 stood at 187,000, well below the market estimate of 212,000 and the previous week's revised figure of 208,000. Continuing claims for the week ending July 11 were 1.796 million, also below expectations. The four-week moving average of initial claims for the week ending July 18 fell to 207,500. Low initial jobless claims suggest employers are still reluctant to conduct large-scale layoffs. However, last month's employment report showed many Americans exiting the labor force, which may also be a contributing factor to the decline in unemployment applications.
Key data to watch today include the UK's June retail sales, Germany's August GfK consumer confidence, the eurozone's July SPGI manufacturing PMI, the UK's July SPGI services PMI, the U.S. July SPGI manufacturing PMI, and U.S. June new home sales.
US Dollar Index
The US Dollar Index strengthened overnight, reaching a 16-day high and is currently trading around 101.40. The index found support from technical buying near the 101.00 level, while renewed expectations of a Federal Reserve rate hike also provided a significant boost. Additionally, safe-haven demand driven by heightened tensions in the Middle East contributed to the dollar's gains. Key resistance is seen near 101.80, with support around 101.00.
Euro/US Dollar
The Euro declined overnight, falling below the 1.1400 level to a 16-day low and is currently trading around 1.1380. The main pressure on the euro came from a strengthening US dollar, supported by renewed Fed rate hike expectations and safe-haven buying. However, the ECB's decision to hold rates steady and growing expectations of a September rate hike limited the downside. Key resistance is near 1.1450, with support around 1.1300.
British Pound/US Dollar
The British Pound also fell overnight, touching a 15-day low and is currently trading around 1.3320. The dollar's strength, driven by Fed rate hike bets and Middle East tensions, weighed on the pound. Furthermore, some cooling in expectations for a rate hike by the Bank of England added to the selling pressure. Key resistance is near 1.3400, with support around 1.3250.
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Editor: Chen Ping
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