Latest ECB rate hike market pricing

LONDON (July 14)  The euro has been seriously struggling in recent weeks falling a massive 18% since 2021. Since the markets emerged from the pandemic the Fed has been more proactive in exiting from the loose monetary policy. One major issue for the ECB has been the war in Ukraine and the slowdown in China.

In addition to this, the 5Star Movement has vowed to boycott a key vote, leaving Mario Draghi in trouble. Tensions have been rising between Draghi and Giuseppe Conte, the 5Stars’ leader, and a former prime minister. Conte has been facing pressure from a coalition of 5Stars lawmakers who think the group can gain support by leaving the government and joining the opposition.

Money markets are now pricing in a 50% chance of a 50 bps rate hike in September but recently there was some analyst chatter of 75%. Elsewhere the high running inflation in the U.S. is sending the divergence between the two policies into overdrive as Fed hiking is being priced in at a higher and faster rate.

Today (Thursday), the EU commission has lowered its growth forecast for 2022 from 2.7% to 2.6%. Elsewhere the inflation rate for this year and next have also been revised higher. (7.6% in 2022, up from 6.1%, 4.0% in 2023, up from 2.7%)

EUR/USD is still trading at depressed levels currently flirting with the 1.00 level at the time of writing. This is the lowest level since December 2002.

KITCO