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Market News Will the European Bank wait until July to raise interest rates? The euro is concerned about how hawkish signals it will send this week
Will the European Bank wait until July to raise interest rates? The euro is concerned about how hawkish signals it will send this week
The European Central Bank is likely to give the direction of future interest rates this Thursday, possibly in July and September. The price action of EUR/USD in the coming weeks will largely depend on the extent to which the ECB signals.
2022-06-07
8134
GMT+8 At 19:45 on June 9, the European Central Bank will announce its interest rate decision, and then at 20:30, President Lagarde will hold a monetary policy press conference. Thursday's policy decision and news conference are widely expected to herald the end of the European Central Bank's latest and longest-running quantitative easing program, while providing guidance on the likely direction of future interest rates.
But foreign exchange markets are most interested in possible policy action by the ECB in July and September, especially any signs of the magnitude of the euro zone rate hike in July.
"EUR/USD could gain this week on hawkish European banks and a weaker dollar, possibly testing upside resistance at 1.0791," said Joseph Capurso, head of international economics at CBOA at Commonwealth Bank of Australia.
"The press conference is important for monitoring hints of a more aggressive tightening cycle, with little chance of the ECB raising rates this week ," Capurso and colleagues said on Monday.
The euro is also closely watching for related signals about the pace and magnitude of the European Bank's rate hike. As market expectations shifted, investors and traders expected only a 35 basis point hike next month and a 125 basis point hike this year that would end a prolonged era of negative rates.
Members of the ECB's Governing Council will discuss whether to raise rates by 25 basis points or 50 basis points in July.
Jeremy Stretch, head of foreign exchange strategy at CIBC Capital Markets at Canadian Imperial Bank of Commerce, said: “Euro zone core inflation is 3% higher than the latest forecast. As such, Lagarde may not completely rule out a move more aggressive than a 25bps rate hike. Any such recognition should help continue to support the euro."
Much of what the euro will do against the dollar in the coming weeks will depend on the extent to which the European Central Bank signals on Thursday that it will raise interest rates, as the market has more expected, or oppose it.
ING economist Chris Turner warned: “Indeed, given that ECB Chief Economist Philip Lane made a clear commitment last week to raise rates by 25 basis points in July and another 25 basis points in September. A hawkish surprise move this week may require Lagarde to open up public discussions on a 50bps rate hike. Even in this case, the market expects the euro to raise rates by 118bps by the end of the year, which means the euro will be out of Benefit is limited.”
Turner and colleagues also said on Monday: “In our view, the market is more likely to reiterate the recently committed policy path (ie, post-July rate hikes), with EUR/USD likely to fall back to the 1.0600 mark in the coming days.”
Elsewhere, the euro could also be sensitive to U.S. May inflation data this week, especially whether they continue to show a month-on-month decline in price pressures. This comes after Fed policymakers last week appeared to signal that their interest rate outlook in the coming months could still become more "hawkish if U.S. inflation doesn't continue to fall, meaning there are still upside risks to the dollar that will weigh on the euro." against the US dollar.
EUR/USD daily chart
GMT+8 At 12:02 on June 7, EUR/USD was at 1.0679/81.
But foreign exchange markets are most interested in possible policy action by the ECB in July and September, especially any signs of the magnitude of the euro zone rate hike in July.
"EUR/USD could gain this week on hawkish European banks and a weaker dollar, possibly testing upside resistance at 1.0791," said Joseph Capurso, head of international economics at CBOA at Commonwealth Bank of Australia.
"The press conference is important for monitoring hints of a more aggressive tightening cycle, with little chance of the ECB raising rates this week ," Capurso and colleagues said on Monday.
The euro is also closely watching for related signals about the pace and magnitude of the European Bank's rate hike. As market expectations shifted, investors and traders expected only a 35 basis point hike next month and a 125 basis point hike this year that would end a prolonged era of negative rates.
Members of the ECB's Governing Council will discuss whether to raise rates by 25 basis points or 50 basis points in July.
Jeremy Stretch, head of foreign exchange strategy at CIBC Capital Markets at Canadian Imperial Bank of Commerce, said: “Euro zone core inflation is 3% higher than the latest forecast. As such, Lagarde may not completely rule out a move more aggressive than a 25bps rate hike. Any such recognition should help continue to support the euro."
Much of what the euro will do against the dollar in the coming weeks will depend on the extent to which the European Central Bank signals on Thursday that it will raise interest rates, as the market has more expected, or oppose it.
ING economist Chris Turner warned: “Indeed, given that ECB Chief Economist Philip Lane made a clear commitment last week to raise rates by 25 basis points in July and another 25 basis points in September. A hawkish surprise move this week may require Lagarde to open up public discussions on a 50bps rate hike. Even in this case, the market expects the euro to raise rates by 118bps by the end of the year, which means the euro will be out of Benefit is limited.”
Turner and colleagues also said on Monday: “In our view, the market is more likely to reiterate the recently committed policy path (ie, post-July rate hikes), with EUR/USD likely to fall back to the 1.0600 mark in the coming days.”
Elsewhere, the euro could also be sensitive to U.S. May inflation data this week, especially whether they continue to show a month-on-month decline in price pressures. This comes after Fed policymakers last week appeared to signal that their interest rate outlook in the coming months could still become more "hawkish if U.S. inflation doesn't continue to fall, meaning there are still upside risks to the dollar that will weigh on the euro." against the US dollar.
EUR/USD daily chart
GMT+8 At 12:02 on June 7, EUR/USD was at 1.0679/81.
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