Time to double down?
A rate hike at the ECB next week looks like a foregone conclusion. The only question remaining is whether the bank decides to opt for a 25 or 50 basis point adjustment to its key monetary policy facilities. There is likely to be increased Euro volatility moving into the event. However, the next two-to-three trading sessions could avoid this volatility as investors await Tuesday’s bank lending survey and the latest set of Euro area inflation data. So far analysts and futures pricing show a relatively even split between a single or double hike next week. Which direction the ECB moves in could have a significant influence over whether EURUSD manages to sustain its so far confident break of 1.10.
Due to the structure of the ECB’s governing council and the requirement to include all Euro area nations within the decision making framework, we have had a lot of contrasting voices from within the Bank itself. Inflation is of course not symmetrically spread throughout the member states and as such different policy makers have espoused considerably different views on where policy should move. The key differentiating logic within the Council depends on members’ answers to the following question: has, and if so at what point did, a supply side inflation problem become demand led.
The universal response regarding the start of this current inflation upward cycle was the war in Ukraine. Weak supply chains post-Covid were not resilient enough to cope with the shock setback in relations from a key commodity exporting region of the world, so the story goes. However, an increasingly demand-driven narrative to inflation has emerged. Those that believe inflation has and will continue to be driven by excess demand are pushing towards a 50-basis point hike. Those that continue to see supply, including even labour supply as the source of the rising price level, are opting for a more gradual approach to tightening.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Chancellor Reeves
Humphrey Percy
Wed 5 Nov 2025
Chancellor Reeves Market observers were no better informed at the end of the Rachel Reeves speech than they were at the outset yesterday morning. The only surprise was that having comprehensively floated options in the past two months for inclusion in her November 26 Autumn Statement, that the Chancellor should have elected to speak at […]
Daily Brief – Gold and Silver
Humphrey Percy
Mon 1 Dec 2025
Gold and Silver As regular readers know we do not offer gold pricing but we do of course monitor the Gold price action as it is a key input into Equity, FX, and interest rate markets. Gold stands at USD 4,205 and Silver at USD 55.62. That gives a price ratio of 75. This week […]
Daily Brief – Economic Competence
Humphrey Percy
Mon 24 Nov 2025
Economic Competence “Chancellor has GBP10 billion hole blown in her calculations just days before her Autumn Statement”, screamed the financial headlines on Friday. Of course, a Budget the size of the UK’s has plenty of overs and unders, but over borrowing and the cost of debt servicing or interest costs are part and parcel of […]
