Introduction
The Euro faced market turbulence after the European Central Bank (ECB) meeting on a Friday, with the market interpreting the ECB’s decision as dovish. Despite some hawkish remarks from ECB President Lagarde, the market sees the ECB as running out of time for further rate hikes, leading to a decline in the Euro across the board.
ECB Meeting Results
Before the ECB meeting, there were speculations that the ECB could raise the refinancing rate by 50 bps. However, they opted for a 25 bps hike instead, along with a reduction in the asset purchase program reinvestment in July and some indication of further increases in the future. Some members even saw 2-3 more hikes ahead. This should have been bullish for the Euro, but the market reacted negatively to the decision, interpreting it as dovish.
Market Reaction
During the press conference, there was some volatility as ECB President Lagarde made some hawkish remarks. However, ultimately, the market sees the ECB as running out of time for further rate hikes, leading to a decline in the Euro across the board. The market wasn’t satisfied with the decision, resulting in bearish sentiment for the Euro.
Lone Holdout
Holzmann, who didn’t have a vote at the meeting, was the lone holdout while policymakers reached a deal on a smaller hike in return for guidance for more hikes ahead and an APP wind-down. However, the market still sees the ECB as dovish, which has resulted in a decline in the Euro.
Possible Future Rate Hikes
Despite the ECB’s indication of possible future rate hikes, the market remains unconvinced. The ECB’s recent decision to reduce the asset purchase program reinvestment and hint at further rate hikes in the future is seen as a temporary measure, with the market believing that the ECB is running out of time for further rate hikes.
Conclusion
The Euro faced market turbulence after the ECB’s recent decision to hike rates by 25 bps instead of 50 bps and indicate further hikes in the future. Despite some hawkish remarks from ECB President Lagarde, the market sees the ECB as running out of time for further rate hikes, leading to a decline in the Euro across the board. The market remains unconvinced about the possibility of further rate hikes, resulting in bearish sentiment for the Euro. Traders and investors should keep a close eye on these developments and adjust their strategies accordingly.
