The International Monetary Fund (IMF) called for further interest rate hikes, stating at a strong growth in consumer prices requires sustained bias towards tightening. Although recent data shows easing inflation in the eurozone and a slowdown in the growth of core measure that excludes volatile categories of goods, prices remain significantly higher than the ECB's target.
Reportedly, inflation fell from its peak of 10.6% in October, but still exceeds 2% by more than threefold. The tight financial conditions resulting from an unprecedented 400-basis-point tightening cycle since July 2022 mean that prices will continue to slow, with a return to target levels projected around mid-2025.
The IMF commended the remarkable resilience of the eurozone economy after the largest energy market crisis in decades. However, modest economic growth could be expected only in the current and next year. It also called on regional countries to limit government spending and reach a swift agreement on economic and financial governance reform within the EU.
"Fiscal policy needs to remain tight in 2023 and 2024. Why? To reduce aggregate demand, lower inflation, and put pressure on the policy of lowering interest rates, thus laying a solid foundation for growth," IMF Managing Director Kristalina Georgieva said. She also warned that "loosening state aid rules," which allow EU members to provide subsidies or tax benefits, potentially could lead to high budgetary costs and economic inefficiency.
With regards to the forex market, EUR/USD could grow further if buyers defend 1.0930 and push above 1.0970. This will allow a move towards 1.1000, heading in the direction of 1.1030. In the case of a decline around 1.0930, euro will fall to 1.0900 and 1.0860.
GBP/USD remains bullish and could continue to grow if buyers gain control above 1.2840. Only a breakdown of this level will trigger a rise towards 1.2880, heading to the level of 1.2920. In the event of a decline in the pair, sellers will attempt to regain control around 1.2800, which could lead to a fall to 1.2760 and 1.2710.