What Fed Hike Means for Europe and the Euro

Well, that wasn’t that bad after all, was it?

The Federal Reserve hiked its benchmark interest rate for the first time in nearly 10 years and global asset markets – on the whole – behaved themselves in spite of months, or even years, of market participants fretting over a lift-off from record low rates.

Across the Atlantic in Europe, the announcement has left analysts and economists picking up the pieces and deciding what this relatively “dovish” rate hike means.

The single currency forms the crux of the issue when looking at how Europe has been affected by the rate hike. The European Central Bank (ECB) has been busily knocking down the price of the euro this year – despite it not being technically part of its mandate – with its aggressive monetary easing.

However, it reached a stumbling block in early December when traders were left disappointed by how it decided to extend its quantitative easing program. A rate hike in the U.S. has lifted the price of the dollar with domestic investors bringing cash home with the prospect of better yields in the country.

In the process, this lowered the euro and would likely benefit exporters in the euro area. After a brief spike as the announcement was made on Wednesday, the euro has been trading lower against the greenback and was down at 1.0849 by 10:00 a.m. London time.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.