Thursday’s ECB meeting ultimately left EUR/USD trading lower as traders questioned the near-term path for euro area rates. Granted, policymakers were crystal clear of a 25-bps interest rate hike in July, but they failed to specify the size of the hike indicated for September. Based on current assessment, the ECB anticipates a gradual but sustained path of further increases post the September meeting. In addition to today’s guidance on interest rates, the ECB announced an end to asset purchases from 1 July.
What’s clear from the decision and accompanying press conference is the ECB did not feel comfortable starting its tightening cycle with a 50 bps hike. When asked why, ECB President Lagarde stated that it was good practice to start with an incremental increase that is sizeable, not excessive, and that indicates a path. That felt like central bank speak for we’d rather not raise by 50 bps unless necessary.
