FX.co ★ Raising ECB rates will not help euro to rally (expect a local increase in USD/CAD and a decrease in USD/JPY)

The European Central Bank unexpectedly raised the key interest rate by 0.50%, instead of just raising it by 0.25%, which was previously announced. They also proposed a new tool to prevent uncontrolled expansion of borrowing costs called the Transmission Protection Instrument (TPI), and brought deposit rates to zero.

Resultantly, EUR/USD rose, but it was only short-lived because the pair returned under pressure. The reason is most likely the new ECB tool since it is aimed at counteracting the erratic market dynamics, which poses a serious threat to the spread of monetary policy in the Euro area.

The central bank also said that if necessary, they will help financially-needy countries in the eurozone. There are a lot of them, so euro came under pressure and even collapsed in some of its currency pairs.

Nevertheless, the ECB's decision will at best, lead to some stabilization in EUR/USD. But after another rate hike by the Fed, there may be another decrease in the pair.

In terms of the European stock market, investors gladly accepted the ECB decision, which led to an increase in quotes.

Ahead is the Fed meeting on monetary policy, where rates could be raised by 0.75%. The US central bank may also continue its tough course aimed at curbing inflation, which will certainly lead to a fall in EUR/USD below 1.0000.

Forecasts for today:

USD/CAD

The pair is consolidating above 1.2850. Deterioration of market sentiment and a slowdown in growth of oil prices may lead to a reversal and rise to 1.2955.

USD/JPY

The pair is trading above 137.60. If bearish sentiment persists, it may fall towards 136.70.