EUR/USD: Here’s why the euro is surging and what to expect next

on Feb 3, 2022
  • The EUR/USD pair jumped sharply after the ECB decision.
  • The bank decided to leave interest rates unchanged.
  • Christine Lagarde did not rule out more rate hikes this year.

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The euro is on track for its best day in months as investors react to the hawkish comments by Christine Lagarde. The EUR/USD jumped by more than 1.20% and reached its highest level since January 14th. Similarly, the EUR/CHF and EUR/CAD rose by more than 1%.


Why the euro jumped

The European Central Bank concluded its two-day meeting on Thursday and delivered a relatively generic statement that was in line with what analysts were expecting.

The bank decided to leave its main interest rate unchanged at -0.10% where it has been since the pandemic started. It reiterated that it will only hike interest rates when inflation is comfortably above the 2% mark.

The committee also decided to continue with its asset purchase program in a bid to aid the economic recovery.

The EUR/USD pair reacted mildly to the ECB decision since it was in line with expectations. The situation changed during Christine Lagarde’s testimony. In it, she refused to rule out the possibility of hiking interest rates later this year.

As a result, analysts expect that the ECB will rise probably in the fourth or third quarter of this year. In a statement, analysts at ING wrote that:

“All in all, today’s ECB meeting marks an important hawkish shift. For some, it even looks like the late revenge of the hawks. In any case, the ECB postponed taking any next steps until the March meeting when a fresh round of macro, and particularly inflation forecasts, will be available.”

What next for the EUR/USD pair?

In the immediate short term, there is a likelihood that the EURUSD price will continue with its bullish trend. 

However, the party may not last long considering that the US will publish its latest non-farm payrolls on Friday. 

Expectations are that the job additions in January was relatively weaker than expected. For example, the number of Americans who filed for jobless claims increased last week. The number has been rising consistently in the past few weeks.

And on Wednesday, data by ADP showed that the private sector lost more than 301k jobs in January. The only positive thing is that the ADP number tends to deviate significantly from the official jobs data.