Home Featured EUR/USD drops as ECB rates expected to rise

EUR/USD drops as ECB rates expected to rise

EUR/USD drops as ECB rates expected to rise


  • Expected rate hike of 25 bp by the ECB
  • Federal Reserve increases rates by 25 bps
  • Powell announces a pause for June

The EUR/USD trades quietly today, in anticipation of the ECB’s decision later on.

How much is the ECB likely to raise interest rates?

All eyes are the ECB, which is expected to raise rates at today’s meeting. Will the ECB raise rates by 50 or 25 basis points? The eurozone April inflation report, published Tuesday, didn’t provide any insights as both the headline and core readings barely moved and were very close to the estimates. The headline CPI rate was 7.0%, and the core CPI rate 5.6%. Both are well above the ECB’s 2% inflation target.

The Bank was aggressive in tightening rates and increased rates by 50% in March. A further 50-bp rate increase would not only help fight inflation, but it could also lead to a recession if the economy were to slow down abruptly. The markets lean more towards a 25 bp increase (80% likelihood) than a 50% bp hike (20% possibility).

No one was surprised when the Federal Reserve raised interest rates by 25 basis points on Wednesday. Investors are more interested in what’s next and Jerome Powell has hinted at the fact that this is not the last hike.

Continue reading…