The European Central Bank left all three key ECB interest rates unchanged today, fully in line with market expectations. The ECB recognised that some measures of underlying inflation ‘ticked up in May’ but added that ‘most measures were either stable or edged down in June.’
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With Europe now approaching their holiday season, the quarterly ECB staff macroeconomics projections at the September 12th meeting will become key. The Euro system and European Central Bank (ECB) staff develop comprehensive macroeconomic projections for both the euro area and the global economy. These projections serve as a crucial input for the ECB Governing Council's evaluation of economic trends and potential risks to price stability. If these projections show price pressures easing further, and growth remaining tepid, the Governing Council may well green light their second 25 basis point cut. Financial markets are currently pricing in a 65% chance of a rate cut in September.
Implied ECB Interest Rates
EUR/USD has traded in a very tight range today after rallying higher in recent days on US dollar weakness. EUR/USD is within touching distance of making a fresh multi-month high with the March 8th high at 1.0982 the first target ahead of big figure resistance at 1.1000. With the ECB decision out of the way and the traditional August European holiday season near, EUR/USD will likely be driven by US dollar activity.
