Published on 23.03.2023 16:10

The Euro continues to grind higher in today’s trading session against the US dollar, following on from yesterday’s interest hike decision from the US Federal Reserve which some analysts are predicting may be the last.

The much-anticipated rate hike by the Fed, which had delivered eight previous rate hikes in the past year, is due to record inflation which is still running at around 3 times the US Central banks target rate of 2 percent.

But in a key shift driven by the sudden failures this month of Silicon Valley Bank (SVB) and Signature Bank, the Fed's following monetary statement after the rate decision no longer says that "ongoing increases" in rates will likely be appropriate.

The banking sector has been in turmoil after California regulators on March 10 closed Silicon Valley Bank in the largest U.S. bank failure since the 2008 financial crisis.

"The Fed is now living on a hope and a prayer that they haven’t done irreparable harm to the banking system," said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.

"The Fed is probably thinking financial stresses are substituting for future rate increases." He added.

While the Fed is pondering halting their rate hiking program, the European central bank seems far from finished and yet another central bank head has joined the growing ranks calling for additional rate hikes.

"I regard it unlikely that we would already be done by now, It's highly questionable whether maintaining rates only in mildly restrictive territory would be enough to generate the immaculate disinflation that we probably all hope for." Said Dutch central bank chief Klaas Knot

Klaas Knot said that the ECB is unlikely to be done with rate hikes and added that the still thinks that they need to raise the policy rate in May. Knot, however, refrained from mentioning the size of the hike.

"I still think we need to make another step in May but I don't know the size of that step," he added.