Turbulent Times Ahead: ECB's Tough Decision Amid Soaring Oil Prices

Rising oil prices give off a foul smell.

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank

Released yesterday, the European services PMI data came in softer than expected in all major euro area locations. The data showed that services sector in Italy and Spain slipped into the contraction zone in August - a month of big summer holidays where people flock to Italian and Spanish cities and beaches. The soft PMI data fueled the European Central Bank (ECB) doves and pushed the EURUSD under a bus yesterday; the pair fell to the lowest levels since the beginning of June and flirted with the 1.07 support on idea that the ECB can't raise interest rates next week when the economic picture is souring at speed. But I believe that it can.

The ECB can announce another 25bp hike when it meets next week, or a faster reduction of its balance sheet, or the end of remuneration of banks' minimum reserves to tighten financial conditions, because the latest inflation figures from the Eurozone showed stagnation, instead of further easing, and the ECB will allow economic weakness to some extent to fight inflation. The most recent inflation expectations in the Eurozone showed that the next 12-month expectations remained steady at 3.4%, but the three-year inflation expectations spiked to 3.4%, and there is no reason for inflation expectations to continue easing when energy prices are going up toward the sky.

Ipek Ozkardeskaya

Ipek Ozkardeskaya provides market analysis on FX, leading market indices, individual stocks, oil, commodities, bonds and interest rates.

She has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked in HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist in Swissquote Bank. She worked as Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.

She is passionate about the interaction between the economy and financial markets. She has been observing and analyzing a wide variety of relationships between the economic fundamentals and market behaviour over the past decade. She has been privileged to live and to work in the world's most exciting financial hubs including Geneva, London and Shanghai.

She has a Bachelor's Degree in Economics and a Master's Degree in Financial Engineering and Risk Management from the University of Lausanne (HEC Lausanne), Switzerland.