EUR/GBP is currently hovering around the 0.8760 mark, as the European Central Bank (ECB) portrayed a blurred picture around the future rate hike path. The market participant was assuming that the ECB would not hike by 50 basis points (bps) after the recent turbulence in the banking sector globally.
Following the US Silicon Valley Bank (SVB) fallout, the market has witnessed many small to large banks falling into liquidity traps emerging from higher borrowing costs across the world. Credit Suisse was the first European bank to face a liquidity crunch this week, although the Swiss National Bank (SNB) intervened with some rescue plans.
Therefore, the expectation prior to the ECB rate decision on Thursday was low for a 50 bps hike. Despite that, the ECB raised the rate by 50 bps. Later on, some backdoor sources suggest that the driving force behind the 50 bps rate was after SNB threw a lifeline to Credit Suisse. Adding to this, the ECB feared ditching a 50 basis point hike would panic investors. Even though some policymakers discussed no change in the rate hike, there was no discussion on a 25 bps hike.
Highlighting the policy statement from the ECB, President Christine Lagarde said underlined price pressures remain strong and wage pressures are strengthening. ECB's Lagarde has poured cold water on any pre-determined rate hike expectation by switching to a data-dependent mode. The liquidity crisis and policy uncertainty from ECB got the Euro mixed action across the board.
Therefore, it has thrown the market expectation for future rate hikes to the sideline, waiting for more data releases to frame any expectations for May's ECB meeting. Subsequently, the market expectation of a 25 bps hike for the May meeting is 50-50. For the Pound Sterling, it is important to watch the Consumer Price Index (CPI) data released from the UK, due next Wednesday, prior to the BoE Interest Rate Decision on Thursday.
© 2000-2023. All rights reserved.
This site is managed by Teletrade D.J. Limited 20599 IBC 2012 (First Floor, First St. Vincent Bank Ltd Building, James Street, Kingstown, St. Vincent and the Grenadines).
The information on this website is for informational purposes only and does not constitute any investment advice.
Making transactions on financial markets with marginal financial instruments opens up wide possibilities and allows investors who are willing to take risks to earn high profits, carrying a potentially high risk of losses at the same time. Therefore you should responsibly approach the issue of choosing the appropriate investment strategy, taking the available resources into account, before starting trading.
Use of the information: full or partial use of materials from this website must always be referenced to TeleTrade as the source of information. Use of the materials on the Internet must be accompanied by a hyperlink to teletrade.org. Automatic import of materials and information from this website is prohibited.
Please contact our PR department if you have any questions or need assistance at email@example.com.