Foreign exchange market update: Bye bye negative rates!

Foreign exchange market update about European interest rates
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  • Currency exchange

Another 0.5% in September?

After a decade, the time has now come: interest rates are also rising in Europe, and they are rising sharply! With an interest rate increase of 50 basis points, the European monetary authorities are reacting to the record inflation in the euro zone and are ending their zero interest rate policy. For many, the move comes too late as other central banks have reacted already months ago. Since inflation is not expected to come down significantly before 2023, these 50 basis points were probably just the beginning.

But how high will interest rates go? What traces are the rising interest rates leaving on the economy? These and many other questions will keep us busy for the next few months. One thing seems clear however, we are not at the end but at the beginning of a global movement towards higher interest rates.

A lot of uncertainty and insecurity is responsible for the fact that we have not seen any sustained market reaction after the most recent policy announcement of the European Central Bank. Immediately after the interest rate hike, the Euro was able to gain ground but had to give up all its gains a little later.

On the currency market, which traditionally always has some sort of summer holidays at the end of July and beginning of August, currency movements are currently heavily influenced by movements in the EUR/USD rate. Although there are signs of bottoming out and more and more market participants tend to believe in a correction of the Euro, no signs of a sustainable correction were observed. The same applies to the EUR/CHF rate.

EUR/USD chart levels

Support 0.9850
Support 1.0000

Resistance 1.0350
Resistance 1.0625

The graph below shows the interest rate development in the US:
Foreign exchange market: update bye negative interest rates

The whole world is assuming that interest rates will rise, but US interest rate graphs show us that within just a few weeks or months a return to a zero interest rate policy is possible or conceivable at any time. This should be taken into account as a possible interest rate scenario in the context of falling inflation expectations in 2023.

For more information on the foreign exchange market update, please feel free to contact our forex experts! You can also check our live currency market overview.

Please note that this elaboration was completed on 22/07/2022 12:57 CET.
This article is for informational purposes only and does not take into account the particular circumstances of the readers. It does not constitute financial advice. The content of this article is not intended as an offer or solicitation to buy or sell any fx or to take any other action and are not intended to form the basis or part of any contract. Clients should seek independent professional advice and draw their own conclusions with respect to the suitability of the transaction, including its economic merits and risks.The information contained in this article is public data and has been obtained from sources believed by amnis to be reliable and accurate. Amnis Treasury Services AG makes no warranty or representation as to its correctness, accuracy or completeness for a particular purpose. Neither Amnis Treasury Services AG nor any of its employees shall be liable for any damages whatsoever arising out of the use of this article, its contents or otherwise.

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Gerhard Scharinger
Gerhard Scharinger is the Head Markets of amnis. He is an expert in Foreign Exchange, Treasury Management, Economics and Hedging. Besides various published articles and foreign exchange news he is also an international speaker at different events. Follow him and amnis on LinkedIn, Twitter and Facebook to keep up with the latest industry news and insights.
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