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 a 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
The EUR/USD 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.