ECB Communication and Powell's Testimony: Impact on EUR/USD and EUR/SEK

EUR: Not much impact from post-meeting ECB communication

The week after an ECB meeting is generally used by members to fine-tune the Bank’s message, although we must note that the past two instances have seen somewhat limited impact from this post-meeting communication. That probably boils down to President Lagarde having gained market traction after some communication hiccups, and markets now having higher confidence on the press conference communication as opposed to post-meeting communication.

Yesterday, we heard some dovish comments by French Governor Villeroy, who said the ECB has completed most of its hiking cycle and further hikes would be less important and highly data-dependent. There were also remarks from the hawkish side of the spectrum, with Muller and Vujcic pointing to sticky core inflation and accepting hard landings as part of the inflation battle.

Today, we’ll hear from two prominent hawkish speakers, Schnabel and Nagel, as well as from Slovakia’s Kazimir (also a hawk). Still, expect the impact on EUR/USD to be secondary compared to Powell’s testimony: we see some downside risks for the pair today, which could move back to the 1.0850/1.0900 area.

Elsewhere, EUR/SEK touched record highs yesterday. This is hardly good news for the Riksbank a week before a pivotal policy meeting where the need to re-establish a united hawkish front to fight SEK weakness will need to be weighed against the negative implications for a the fragile real estate market. Here is our full Riksbank preview and EUR/SEK update.