The unlikely instant hike, but we can see some signals for July
ECB Monetary policy meeting will be held Thursday, June 8, and will be closely watched by market participants. While inflation printed a record 8.1% in May and first-quarter GDP beat the 0.3% expectation by 0.6% growth, must push the European Central Bank's remembers to make some hawkish decisions.
Same as FED, BoE, and other major central banks, ECB also is hesitant to decide between higher inflation and stagflation. What earlier meetings show us is that central banks mostly prefer to control inflation than be worried about stagflation. Earlier this week, on Tuesday, the Reserve Bank of Australia raised the interest rates by 50 bps to 0.85%, while market participants were waiting for 25 bps. On the first days of May, FED also raised the rates by 50 bps, signaling about two more 50-point increases in the next two meetings (June and July). Looking at the other banks' policies and decisions encourages us to increase our expectations from ECB as well.
For now and in this meeting, it is so unlikely to see an immediate rate hike from ECB's conservative members; however, signaling about a possible 25 bps rate hike in the July meeting can be on the table. As President Lagarde has opted for language consistent with tighter monetary policy, and some other members also had some comments to support Mrs. Lagarde, we can expect that Central Bank in Europe to announce the end of its bond-purchases program and that net asset purchases will be completed by the end of the month. Also, expecting a steady lift in the Deposit rate over the second half of 2022 and in 2023 would not be far from the logic.
As a result, we can wait for the strengthening of the Euro and the relative weakness of European stock markets. However, EURUSD is still far from trend change, as the US dollar is also supported by the US Central Bank policies and its Safe-haven demands. As we can see in the bellow figure, pairing still has strong resistance at 1.10. Until EURUSD did not cross it, the downtrend strongly continues.
