The stage is set for an ECB rate hike of 25bps on Thursday at 13:15 UK time, with both short-term interest rate markets and economists anticipating it. Christine Lagarde’s clear signals have solidified expectations for a July rate hike. Yet, the lingering uncertainty remains: What will the ECB reveal about its plans for September?

There have been conflicting signals before the meeting. ECB’s Knott indicated a July hike is a “necessity” but future hikes are uncertain. ECB’s Nagel called inflation a ‘greedy beast’ and it would be a mistake to cut interest rates too soon and ECB’s Simkus wouldn’t be surprised if the ECB continues to hike in September. In contrast, ECB’s Stournaras said that another 25 bps hike ‘would be enough’. Furthermore, there has been a flurry of weak PMI prints this week, raising concerns for the ECB that it will need to slow the path of hikes down.

Over the last 23 years, whenever the ECB has hiked interest rates the EURUSD has fallen over 70% of the time for an average drop of -0.83% over the period outlined. Are there more falls ahead with this hike?

Major Trade Risks: The biggest risk here is to do with the market reaction to the Fed meeting the night before and the ECB decision itself.

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