European Central Bank (ECB) Interest Rate Decision
The European Central Bank (ECB) kept Euro-Area interest rates unchanged in July after delivering a 25bp rate-cut at its last meeting.
Euro-Area Economic Calendar – July18, 2024
The ECB reiterated that the Governing Council is ‘determined to ensure that inflation returns to our two per cent medium-term target in a timely manner,’ with the central bank going onto say that ‘we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.’
In turn, the ECB warned that ‘our interest rate decisions will be based on our assessment of the inflation outlook,’ and it seems as though the Governing Council will gradually adjust its policy as ‘we are not pre-committing to a particular rate path.’
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EUR/USD Chart – 15 Minute
Chart Prepared by David Song, Strategist; EUR/USD on TradingView
EUR/USD initially showed a limited reaction to the ECB rate decision but struggled to hold its ground during the press conference with President Christine Lagarde as it ended the day at 1.0897. The weakness in EUR/USD carried into the end of the week as it closed at 1.0885, with the exchange rate falling further in the week ahead as it closed at 1.0856.
Looking ahead, the ECB is expected to further unwind its restrictive policy in September, with the central bank projected to reduce Euro Area interest rates by 25bp.
Even though the ECB no longer provides forward guidance, developments coming out of the central bank may influence foreign exchange markets as the Governing Council continues to alter the course for monetary policy.
With that said, the Euro may face headwinds should the ECB prepare European households and businesses for a more accommodative policy, but the meeting may prop up the single-currency if the central bank delivers a hawkish rate-cut.
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--- Written by David Song, Strategist
Follow on Twitter at @DavidJSong