BREAKING: ECB raises interest rates and signals end of hiking cycle! EURUSD retreats!

Deposit rate: 4.0% (consensus: 3.75%; previously: 3,75%). The market was pricing around a 60% probability of a hike. Other key rates were also raised by 25 pb. On the other hand, the ECB signals that this may be the end of the hiking cycle:

• "We consider that interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to timely."

• "The rate increase today reflects the ECB’s assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy"

• The past interest rate hikes continue to be transmitted forcefully

• Inflation continues to decline but it is still too high and remains at heightened levels for too long

• Future decisions will ensure that interest rates will be set at sufficiently restrictive levels as long as necessary.

• EBC will still be data-dependent in future decisions

• EBC sees inflation at 5.6% in 2023, prior forecast at 5.4%. EBC sees also inflation at 3% next year, in line with previous projections

• ECB revised down projections for underlying inflation: 5.1% for 2023, 2.9% for 2024 and 2.2% for 2025%

• ECB sees GDP growth at 0.7% in 2023, prior 0.9%. In 2024: 2.9% vs 3.0% and in 2025: 1.5% vs. 1.6% previously

EURUSD has fallen to the lowest since September 8 as the ECB signaled that it may be the end of the hiking cycle. The ECB stated that the rate at this level for a prolonged time should bring inflation towards the goal. The market is pricing around a 30% probability that the bank will decide to hike further this year. 

Of course, we should remember that at 01:45 pm BST Lagarde will deliver a speech after the decision and may try to change the market view on further decisions. 

Source: xStation5