EUR: No easy task for Lagarde today
It’s European Central Bank decision day, and our call for a 25bp rate hike is fully in line with consensus and market expectations. In our ECB Cheat Sheet, we outline four different scenarios along with implications for EUR rates and EUR/USD: in our base case, today’s rate increase will be paired with an attempt to convey a hawkish tone and leave the door open for more tightening ahead.
Markets are almost fully pricing in another hike in July, and the focus will primarily be on President Christine Lagarde’s press conference and whether she will offer hints that the Governing Council is leaning in favour of a July move. Staff projections will also be released but may not gather too much attention or drive much of the market reaction.
Given the market's strong conviction about another 25bp hike in July (or September at the latest), the bar for a hawkish surprise is probably set quite high today. The ECB may need to signal several more hikes to trigger a significant jump in the euro and that does not look very likely considering the recent signs of decelerating inflation and deteriorating growth outlook. In other words, there is still the interest for the ECB to sound hawkish today, but we suspect that might not be enough to send the euro higher, and we see some moderate downside risks for EUR/USD today.
We could see EUR/USD drop back to the 1.0750 handle today, although developments on the US data side will continue to drive the large majority of trends in the pair moving ahead, with ECB policy playing second fiddle, in our view.
![Turbulent Q2'23 Results for [Company Name]: Strong Exports Offset Domestic Challenges](https://www.fxmag.com/media/cache/main_box_filter/uploads/articles/2022-FXMAG-COM/GPWA/gpw-s-analytical-coverage-support-programme-wse-2-6311cd4191809-2022-09-02-11-30-41-63175bda84812-2022-09-06-16-40-26.png "Warsaw Stock Exchange: Brand24 (B24) - 1Q23 financial results")
![Turbulent Q2'23 Results for [Company Name]: Strong Exports Offset Domestic Challenges](https://www.fxmag.com/media/cache/article_small_filter/uploads/articles/2022-FXMAG-COM/GPWA/gpw-s-analytical-coverage-support-programme-wse-2-6311cd4191809-2022-09-02-11-30-41-63175bda84812-2022-09-06-16-40-26.png "Warsaw Stock Exchange: Brand24 (B24) - 1Q23 financial results")
