The ECB decides to increase interest rates despite market fears.

Yesterday the European Central Bank decided to headstrong in the direction against inflation and further hike interest rates by 50 points. This announcement is not exactly a welcome site as the recent banks that collapsed in the USA have everyone pointing at record high-interest rates as in their attempt to stop inflation they are drying up banks. Today we will assess how these interest rates have affected the Euro and how to trade it accordingly.

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Why the interest rate hike？

The ECB, just like most financial institutions of most countries, is trying desperately to fight the high rates of inflation and hence they have doubled down on their decision to raise interest rates still despite the overarching market sediment that is unstable at the moment. The ECB understands and will continue to monitor market pressures and sediment however the priority is set on reducing inflation to targeted levels as soon as possible hence more interest rate hikes are expected in the near foreseeable future.

The ECB President Christine Lagarde defended the decision as she stated that inflation projections would be far too high for too long hence the drastic actions are a necessary evil despite market fears. The recent collapse of the Two American Banks has everyone a bit apprehensive about interest rate hikes as it is believed that it is because of the abnormally high-interest rates that are pushing banks to the brink of collapse

What should we do as traders

This decision means that the EUR is to gain strength hence why we see from the market yesterday that suddenly there has been a spike and a change of heart on currency pairs that feature the EURO. We should see this trend continue for a while so on EURUSD we should see it continues to rise at least until the announcement of the US interest rates next week by the FED where they are also most likely going to hike interest rates.