The euro briefly fell below parity with the US dollar, after the decision from the European Central Bank (ECB) to raise interest rates. US data also showed that the largest economy in the world rebounded more quickly than expected during the third quarter.
In an attempt to rein in price growth, the ECB increased its deposit rate by 75 basis points to 1.5%. This is the highest level since 2009. While rate increases are likely to continue, the economy is weakening meaning that they will be more gradual.
Christine Lagarde, President of the ECB, stated that although Russia’s invasion in Ukraine and other global uncertainties put the euro area economy at risk, the inflationary risks were skewed upward.
After the ECB rate announcement, the euro fell below parity with the greenback, having reached a one-month high at $1.0094 versus dollar earlier in the day. The European currency recovered some of its losses against the strong dollar and closed at 1.0111, down 0.69%
The dollar also received a boost after data showed that US gross national product rose at 2.6% year-on-year last quarter, ending two consecutive quarterly declines that raised concerns about the economy being in recession.
At its November 2nd policy meeting, the Fed will likely raise its benchmark overnight rate by 75 base points to 1.5%, a 13-year high. It is also expected to end an important subsidy for commercial banks. This speculation had also caused the dollar’s decline in recent days.