Get ready for the ECB to hike rates (just not tomorrow)

There has been a growing chorus of calls for the ECB to hike rates, but they’re unlikely to raise rates this week. Tomorrow’s meeting is really about formally announcing the end of asset purchases and signalling that hikes will begin in July. And whilst it would be a welcomed bonus for the ECB to announce the size of July’s hike, we’re not holding our breath.

Will the ECB hike in 25 or 50-bps increments?

Forecasters are divided between 25 and 50-bps increments, and we cannot blame them. There are no immediate signs of inflation pausing for breath using the headline CPI numbers. Monthly and annualised CPI reads pointing sharply higher for France, Germany and the broader euro zone - and that alone calls for the ECB to join the rate-hike party, especially since the latest trend is now 50-bps increments.

Yet as ECB President Lagarde herself points out - the euro area isn’t facing excessive demand or an overheating economy, and large parts of inflation have been imported from outside the euro area. Ultimately this is weighing on consumer and business sentiment, so a series of 50-bps hikes seems unlikely, despite high levels of inflation.

In all likelihood the ECB will opt to raise rates by 25-bps in July and September, which leaves the potential for further hikes in October and December. They want to be seen acting, but are clearly happy to be one of the last out of the gates. And whether they’ll switch to a 50-bps increment is likely down to whether inflation begins to cool in H2.

ECB guide

Eurozone inflation remains hot, but there are early signs of it cooling

But there are some signs that inflation pressures may be abating. Expectations for consumer inflation and selling prices for the eurozone fell notably in May, along with German producer prices and import costs. Still, it’s unlikely to change the needle tomorrow. The ECB appear set to announce a July hike, although we’ll likely need to wait before finding out just how aggressive said hikes will be.

EUR/USD meanders around 1.7000 ahead of ECB meeting and US CPI

One issue euro bulls may now face is that any forthcoming hike from the ECB has been well telegraphed, and that leaves room for disappointment (and a lower euro). Of course, another rise in US inflation on Friday would likely exacerbate any downside move on EUR/USD. But, if the ECB surprises with hawkish forward guidance tomorrow and it is coupled with another soft(er) inflation report on Friday for the US, we’d expect a decent rally above 1.0800.

The risk leading up to the ECB meeting is that EUR/USD remains within its approximate 1.6350 – 1.7800 range. Yet that still leaves potential opportunities for those seeking smaller moves.

EUR/USD is trading below 1.0700 and the weekly pivot point ahead of the European open, so today’s bias remains bearish whilst it caps as resistance. The lows around 1.0650 would become our downside target, where bulls may seek to enter as part of a range-trading strategy ahead of the ECB meeting. Conversely, a break above yesterday’s high today flips us to a bullish bias over the near-term and brings 1.0750 into focus. Whereas a disappointing ECB meeting coupled with stong(er) US inflation could see EUR/USD roll over after breaking out of range.

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

Open a Forex.com account, or log in if you’re already a customer.
Search for the pair you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels.
Place the trade.

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.