EUR/USD – ECB hikes interest rates and warns at least one more is coming

Should we take them for their word?

The ECB raised interest rates by another 25 basis points today and signaled there’s more to come as it significantly revised up its core inflation forecasts for this year and next. Prior to the meeting, markets were pricing in a hike today but perhaps no more after, something President Lagarde sought to actively discourage.

During the press conference, Lagarde stated that “barring material change, very likely that we will continue to raise rates in July” while also insisting that the committee is not thinking about pausing. The hawkish language is perhaps not surprising but the explicit nature of those comments when referencing the next meeting was arguably more so than markets anticipated.

Those words probably only marginally impact people’s expectations ahead of the next meeting as the ECB has been quite explicit before and then not acted accordingly. But it does suggest the data needs to improve significantly before then if the central bank is going to change its mind.

EUR/USD Daily Chart

Source – OANDA on Trading View

The euro appeared to hold onto the bulk of the gains made in the aftermath of the announcement and then the press conference while the same wasn’t necessarily true of yields which seemed to give most back. It’s heading back toward the region it has repeatedly run into resistance over the last six months against the dollar which may prove to be an interesting test again. The momentum indicators – stochastic and MACD – aren’t currently displaying any sign of trend exhaustion although that could change if it gets closer to those previous highs.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.