The shift in ECB policy translated into an increase in the price of the euro

On Thursday, the key event for the financial markets could be a turn in monetary policy European Central Bank. As a consequence, it could lead to a strong appreciation of the euro. Today, the market will await key data from the US labor market.

Inflation in the euro area exceeded 5%. and maybe that is why the ECB presented its position of readiness to fight inflation, which the market perceived as the possibility of faster and larger interest rate increases than previously assumed.

Three interest rate hikes this year?

Currently, the market consensus may indicate that instead of a 20bp hike in 2022, there may be a 40 or 50 bp hike. The first rate hike may take place in June, and the next one in September and December. Nevertheless, even a 50bp hike would mean the deposit rate would barely come back from -0,5% to 0,0%.

EUR / USD exchange rate it seemed to respond to the higher probability of increases by a huge increase, given the recent volatility. Even before the press conference EBC the euro cost $ 1,1270 to hit the level of $ 1,1470 this morning. During the whole week, the euro rose so rapidly against the US dollar only in March 2020. Today, however, the result of the last trading days may be affected by the data from the US labor market.

The forecast says: 150, but it could be worse

The market consensus sees an increase in new jobs in the non-farm sector in the US by 150. jobs in January 2022, which would be the lowest reading since December 2020. This reading could have been influenced by the coronavirus omicron variant. The chances of the figures being much lower seem to be increasing. ADP report showed that private companies liquidated 301 thousand. jobs, and the White House warned that the data could be very weak as the peak of omicron cases coincided with the wage data collection period, according to Jared Bernstein, member of Joe Biden's Council of Economic Advisers.

Even if the reading were surprisingly negative, it might only be temporary. The US job market is likely to recover in the coming months. The effects of the omicron appear to be less severe than initially anticipated and are starting to fade away while the demand for labor remains high. Apart from the data on the change in employment, the publication on the increase in wages in the context of a possible wage-price spiral also seems to be important. The data will be released today at 14:30 PM.