ECB day
Today’s interest rate decision from the ECB will be key for the Euro. With major Euro crosses trading at important technical levels, all eyes will be on Lagarde at the press conference that follows today’s decision. The market has been fully pricing a 25-basis point hike from the ECB for some time. It is highly unlikely that the governing council would not deliver such a decision in line with expectations tomorrow. However, as always, the devil will be in the detail and, in particular, any forward guidance offered explicitly or implicitly.
The market is not expecting a ‘one and done’ type adjustment from the European Central Bank. With inflation having been seen to shift materially higher and the growth outlook being sanguine enough to accommodate monetary adjustment, the curve currently shows the most likely course is for 3 hikes in 2026. Frequently in recent months, near-term rate differentials have been seen to be a key driver for EURUSD. A steepening yield curve in the eurozone would therefore build a case for a stronger Euro.
Amidst the latest pessimism surrounding the prospect of an enduring peace deal between the US and Iran, EURUSD has sold off towards three-month lows. Within GBPEUR, spot prices were once again pushed lower yesterday as the pair approached a key technical and psychological level around 1.16. Today’s decision will mark the first adjustment to monetary policy from the ECB in one year. With existing pricing for further hikes before year-end already ambitious, the market will be watching for any hesitancy from the governing council or an inclination to push back against market pricing.
Discussion and Analysis by Charles Porter
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