The European Central Bank does not meet until September, as do most central banks around the world. Therefore, we still have the entire month of August to analyze the data and estimate to what extent the ECB will raise rates and how long this process will last. The rate hike forecasts have been significantly reduced recently. For example, in the opinion of JP Morgan, the ECB will decide only on one hike of 50 bp this year and it will most likely take place in September!
However, the market still believes in the ECB, but does not see such huge increases at one meeting. On the other hand, the market did not believe in a strong rate hike in July. A hike of just over 30 basis points in September is currently being priced in. It is close to 25bp, but it is rather a slope towards 50bp. In turn, by the end of this year it is supposed to be 100 basis points. Kazaks suggests, however, that the rate hikes will be strong and will be extended until at least the middle of next year.
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The market is still expecting a 100bp hike by the end of this year, but at the same time it does not price in the full 50 bp hike in September. Source: Bloomberg
On the other hand, it is worth remembering that in the previous cycle, the ECB had to change fronts quickly. Only two hikes took place and after a few months the ECB had to cut interest rates to even lower levels than before. The previous charge was 50 bp, of course from the higher tiers. Currently we had a 50 bp hike, but we only reached a neutral zero level. The ECB will have to deal with a potential strong economic slowdown. Will the central bank still want to raise rates in such an environment? Source: Twitter @PrzemekSNR
From a weekly perspective, we cannot say that the downward trend on EURUSD was reversed. The pair remains close to 1.0200 and there is no buyer activity in sight. We do not have an negated downward sequence, so disappointment with future ECB measures may weaken the euro even more. On the other hand, the dollar is strongly bought up, so if weakness also appears on the US labor market, it may be a chance for a greater recovery move for this pair. Source: xStation5
