Editor's Note: The article was updated to refect higher gold price.
(Kitco News) - The gold market remains under pressure but off its session lows as the U.S. dollar loses ground to the euro after the European Central Bank took an aggressive step and raised interest rates more than expected.
The ECB, while late to the party, has become the latest central bank to tighten its monetary policy to combat rising inflation. The central bank raised the three key ECB interest rates by 50 basis points. This marks the first rate hike in 11 years. Economists were expecting to see a 25-basis point move.
Along with the rate hike, the ECB also said that it approved its Transmission Protection Instrument (TPI), which is being launched to reduce fragmentation risks in the European economy. The central bank said that it will be releasing more information at its press conference at 8:45 am ET.
In delayed reaction to the aggressive ECB announcement, the gold market is seeing some new buying momentum as it bounces off session lows. August gold futures last traded at $1,890 an ounce, down 0.60% on the day.
"The Governing Council judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting. This decision is based on the Governing Council's updated assessment of inflation risks and the reinforced support provided by the TPI for the effective transmission of monetary policy," The ECB said in its monetary policy decision.
Along with its larger-than-expected rate hike, the ECB said that it sees further tightening this year.
"At the Governing Council's upcoming meetings, further normalisation of interest rates will be appropriate. The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions," the ECB said.
At the same time, the ECB said that the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries.
