Ahead of the ECB meeting we were looking for a scenario where the ECB acted decisively on inflation and played down slowing eurozone growth. The reaction in the Euro after the ECB meeting was weakness. There was nothing really specifically negative about the ECB statement. It was more the lack of an obvious commitment from the ECB to hike rates. In the Press Statement after the meeting, Christine Lagarde stressed that the eurozone was more vulnerable to the Russian/Ukraine crisis than the US and that the ECB cannot ensure growth. This was a more ‘stagflationary’ outlook painted by the ECB, so it was not a clear indication of faster rate hikes coming due to rising inflation. That would have been the most obviously EUR-positive outlook.
Rate hikes are still on the table for July
Although the chances of a July rate hike fell post the ECB meeting from 70+% down to 50+% the sources piece on April 14 stated that ECN policymakers still see a July hike as possible after Thursday’s meeting. Policymakers were reportedly unanimous in backing Thursday’s policy message that the ECB would end its bond-buying program in Q3 and raise rates some time after that. Remember that in every ECB meeting there are three different reactions. Firstly, we have the statement then the Press Conference. The Press Conference offers Christine Lagarde the chance to clarify and/or correct any initial market reactions to the statement. After these two events, there are ECB ‘sources’ reports that offer a third chance for the ECB to set the market in the right direction. Crucially here it was the sources reports that have kept open the possibility of a rate hike for July. So, in balance, it would be reasonable to still expect some EURGBP gains from here. The BoE is is more tentative about their hiking progress from this point, so there is potential for some EURGBP gains and risk can be easily managed from this key support around 0.82500 marked on the chart below.