Pause from the ECB? The currency market waits for a signal
The European Central Bank is likely to keep interest rates unchanged during today’s meeting.
According to Reuters, European policymakers may be ready for another rate hike that could occur in September.
Last time the ECB raised rates in June, leaving room for further tightening of monetary policy.
Despite favorable macroeconomic conditions, a second rise in energy prices following the escalation of the conflict between the United States and Iran threatens to intensify inflationary pressure.
We wrote more about this in the article: Dollar and euro rates under pressure! Trump threatens to strike Iranian infrastructure. Here’s how USD/PLN and EUR/USD react.
Therefore, ECB President Christine Lagarde may emphasize that further tightening of monetary policy remains one of the scenarios considered by the Governing Council.
Reuters reminds that the main reason the central bank may afford more patience is that the effects of the second round of sharp market moves are not yet fully visible.
A potential challenge for the ECB is also the effects of European heatwaves, which could damage crops and thus drive up food prices.
“Although food price inflation has generally shown a downward trend in recent months, reflecting lower commodity prices such as sugar, cocoa, and coffee, an extremely hot summer in Europe combined with the effects of the El Niño may again trigger pressure on food price growth,” economists at Barclays said.
Source: Trading Economics.
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Dollar and euro rates on Thursday, July 23
The euro to dollar rate on Thursday, July 23 is at 1,14 USD.
Analysts at ING Think highlighted that the currency pair remains relatively resilient despite rising energy commodity prices, including natural gas, which approached March highs at 60 EUR/MWh.
“Some role was probably played by interest rate differentials – higher oil prices caused investors to price a more aggressive response from the European Central Bank in the form of monetary tightening than with the Federal Reserve,” they said.
“However, as our team points out, it’s hard to imagine the market pricing even higher ECB rates, regardless of the tone of the communication issued during the ECB meeting and press conference,” they added.
Experts forecast that if there is no ceasefire between Washington and Tehran, the euro to dollar rate will return to 1,1380, and then will “follow signals coming from the upcoming ECB meeting.”
Chart. Euro to dollar rate (EUR/USD)
Source: Trading Economics.
The dollar to zloty rate reaches 3,78 PLN.
Chart. Dollar to zloty rate (USD/PLN)
Source: Trading Economics.
The euro to zloty rate hovers around 4,32 PLN.
Chart. Euro to zloty rate (EUR/PLN)
Source: Trading Economics.
Read also: Dollar rate before a breakout? Expert: “Capital will flow back to USD”
See also: Dollar rate before a “nervous and dynamic” move, euro waiting for a drop? Expert issued forecast for USD/PLN and EUR/USD
Sources: Reuters, ING Think.
