While the European Central Bank hiked its benchmark interest rates for the first time in 11 years, euro currency-related exchange traded funds only saw modest gains without strong guidance from the ECB.
The Invesco CurrencyShares Euro Currency Trust (FXE) rose 0.2% on Thursday.
Meanwhile, the euro currency was trading at around $1.0193.
The ECB hiked rates by a larger-than-expected half percentage point, its first rate hike in 11 years and its biggest since 2000, and revealed plans to purchase the debt of Europe’s most at-risk economies to assuage concerns of higher borrowing costs, Bloomberg reported.
Considering the ongoing political risks in Italy that could bleed over to its economy, ECB President Christine Lagarde and colleagues also added a tool to help with the increased borrowing costs on more vulnerable economies so that the Eurozone won’t see a repeat of what happened in 2012.
“Price pressures are spreading across more and more sectors,” worsened by a weakening euro, Lagarde told reporters. “Most measures of underlying inflation have risen further. We expect inflation to remain undesirably high for some time.”
The ECB also stated that further normalization of interest rates could come ahead.
“The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest-rate decisions,” the ECB said in a statement.
However, the central bank held back on providing any further guidance on the size of future rate hikes.
In response, the money markets reduced bets on how much ECB officials will raise rates in their next meeting.
“The market is trying to force Lagarde into giving clear guidance on when they will use the tool and a stronger ‘whatever it takes’ commitment, whereas Lagarde still does not want to give too much away,” Kaspar Hense, a portfolio manager at BlueBay Asset Management, told Bloomberg.
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