The ECB remained on hold as expected and did not pre-commit to a specific interest rate path

In view of geopolitical uncertainty and the threat of wage inflation, the European Central Bank kept the three major interest rates unchanged on Thursday, in line with market expectations, while leaving the door open for a potential rate cut in September. After the interest rate decision was announced, the euro against the US dollar did not fluctuate much in the short term and continued to fall during the day. The money market continues to bet that the European Central Bank will cut interest rates twice more this year.

The ECB said it would keep policy sufficiently restrictive if necessary to ensure inflation returns to 2%.

The bank wrote in its policy statement that the new data received by the Governing Council generally support its previous assessment of the medium-term inflation outlook. At the same time, domestic price pressures remain high, with high service sector inflation, and overall inflation is likely to continue to be above target next year.

The ECB again said it would not pre-commit to a specific interest rate path and reiterated it would be "data dependent and a meeting-by-meeting approach".

The ECB is weighing whether eurozone inflation has cooled enough to allow for further easing. Last month, eurozone inflation fell slightly from 2.6% to 2.5%, but core inflation remained firm and service inflation rose above 4% again.

European Central Bank President Christine Lagarde will face questions about the future path of interest rates at a news conference. She may also be asked whether France is eligible for ECB help at a time when fiscal and political turmoil is unsettling bondholders.

For the euro, however, traders appear to be taking their cues mainly from the U.S. rather than the euro zone, ING strategists said.

“Despite the ECB’s self-proclaimed independence from the Fed, the euro should remain more driven by U.S. data in the near term as we think markets have seen a key turning point and prefer to focus on more decisive Fed rate cuts,” they wrote.

Continuously updating...

Article forwarded from: Jinshi Data