The latest ECB decision started off in the same vein as the RBA’s and the BoC’s decisions this week. It hiked the amount expected, 75bps, committed to return inflation to target, and stressed it was data dependent.

The rate hike was never the focus

The decision was never going to be about the amount the ECB hiked. Whether it was a 75bps hike or a 100bps hike the focus was always going to be on the future growth outlook of the eurozone. Would the ECB follow the BoE’s lead and project a 2023 recession? In the event, the ECB revised growth lower but kept it positive. The ECB still expects the eurozone economy to grow, although the amount has revised lower to 3.1% in 2022, 0.9% in 2023, and 1.9% in 2024.

Asset purchases to continue being reinvested

The Governing Council intends to continue reinvesting the principal payments from maturing securities purchased for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance. This was as expected and if the ECB had decided to halt the APP purchases it would have been bullish.

The press conference

In the press conference, a more downbeat picture emerged. President Lagarde mentioned that the downside scenario sees negative growth in 2023 and gas rationing. However, this was the ‘downside’ scenario and not the ‘base case’. The weakness in the euro was not really addressed, but that was a message. President Lagarde said that the ECB does not target the FX rate, the next hike may not be 75bps and rates are not currently at neutral.

The bottom line

Nothing really tradable. Yes, it keeps downside risks open in case the energy crisis saps German manufacturers’ profits and brings negative 2023 growth, but there was nothing unexpected here. If there was anything it was slightly more hawkish. If you had to take a trade then EURCHF downside bias would likely make sense.

If we got a definitive expectation of a eurozone recession in the next few weeks then the EURGBP is worth keeping on your radar.