- The European Central Bank has raised rates by 25 bps, as most expected.
- Dovish hints in the statement were compensated by strong hawkish ECB press conference.
- ECB President Lagarde clarified that more hikes are coming, lifting the Euro, with more in store.
Doves are licking their wounds – contrary to previous decisions, they have ceded little ground in return for a slower pace of rate hikes. The "sufficiently restrictive rates" language in the European Central Bank's statement has the Euro higher. The Euro went down initially and for good reasons. But then came ECB President Christine Lagarde who made explicit hawkish comments in her Q&A session.
Here is what doves received in the statement:
1) Rate hikes have slowed to 25 bps: While that was expected, it comes just after the pledge to raise rates twice by 50 bps expires. The hawks only got what they were promised, but nothing more. Market participants expecting a bigger increase were disappointed.
2) Policy is "forcefully" transmitted: These comments about past hikes mean they are successful according to the ECB. There is no need to raise rates further – or at least not by much – due to this success.
3) No clear commitment about further hikes: The Frankfurt-based institution said that it will bring rates to levels "sufficiently restrictive," – but bringing them does not mean more hikes. If inflation falls below interest rates – or is seen as falling there – then there is no need to raise rates.
As mentioned above, President Lagarde turned things around. She waited for a question about the next moves to send clear explicit messages.
She emphasized that the ECB will bring interest rates to sufficiently restrictive levels. The ex-French politician also said that the hiking process is a "journey" and we are not there yet. And, she also said that the ECB has more ground to cover, and this is definitely not a pause.
Her comments are much more committal than the Fed's big hint about a pause. Unless a disaster happens, the ECB will keep raising rates, probably more than once. At the same time, barring any surge in inflation, the Fed is done hiking.
This divergence means more gains for EUR/USD – bulls can thank Lagarde for that.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD clings to small daily gains above 1.0700

EUR/USD has lost its traction after having climbed toward 1.0750 earlier in the day but managed to stabilize above 1.0700. Mixed performance of Wall Street's main indexes following the consumer confidence data helps the US Dollar hold its ground and caps the pair's upside.
GBP/USD retreats below 1.2400 as US Dollar rebounds

GBP/USD has retraced a small portion of its daily rally and declined below 1.2400 in the American session on Tuesday. Following a bullish start to the day, major equity indexes lost traction and helped the US Dollar stage a rebound while weighing on the pair.
Gold: XAU/USD retakes $1,950 as investors hesitate Premium

Gold price has posted a nice comeback after bottoming for the day at $1,932 a troy ounce, now trading near a daily high of $1,963.48.
Bitcoin whales could prevent BTC price first monthly loss of 2023 through this move

Bitcoin price is inching towards the first monthly loss of 2023. At press time, BTC price is 4.4% below $29,233, its price on May 1. If BTC fails to regain lost ground, the asset is in for its first monthly loss of the year.
Tesla Stock News: TSLA breaks above $200 as Elon Musk visits China

Tesla (TSLA) stock has overcome a major psychological barrier to start the week with shares overcoming the $200 level early Tuesday. A number of tailwinds are aiding the growth stock, which has gained 4.4% to $201.67 in the premarket.