ECB hike interest rates by 75bps.

The euro dropped more than 1% on Thursday, falling back below parity with the dollar, after the European Central Bank raised interest rates and U.S. data showed that the world’s biggest economy rebounded more than expected in the third quarter. The ECB raised its deposit rate by 75 basis points to 1.5%, the highest since 2009, in an effort to prevent rapid price growth from becoming entrenched.

While risks to the euro zone’s growth outlook had shifted to the downside, the central bank has made substantial progress in removing monetary accommodation through three consecutive rate increases, ECB President Christine Lagarde said at a news conference.

Data showed that U.S. gross domestic product rose at a 2.6% annualized rate last quarter, ending two straight quarterly decreases in output that had raised concerns the economy was in recession. The stronger-than-expected GDP figures followed a raft of weaker-than-forecast economic data in recent weeks that had raised concerns about the impact of the Federal Reserve’s aggressive interest rate increases on the economy.

The chancellor and PM are facing sober decisions on potential spending cuts and tax rises. In a meeting on Thursday, they were told that economic growth is forecast to be considerably lower than the last independent forecast. This means they have a bigger financial hole to fill. An announcement on the plans has been pushed back by more than two weeks to 17 November. The Treasury would not put a figure on how much the chancellor and prime minister will need to find in the budget next month.

Last month, sterling fell to a record low against the dollar as government borrowing costs rose in the aftermath of then-chancellor Kwasi Kwarteng’s mini-budget. The financial markets plunged into turmoil when Mr Kwarteng announced major tax cuts without detailing how they would be paid for. But the cost of government borrowing has since fallen back to the level it was at before the mini-budget. The pound also rallied after Mr Sunak became prime minister, and as the dollar fell.

Economic Calendar

12:00EUR Harmonized Index of Consumer Prices10.9%10.9%

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