- On Thursday, the ECB will announce its monetary policy decision.
- A 50 basis point hike in key interest rates looks like a done deal, despite banking-industry jitters.
- Focus is on the forward guidance, “course in raising interest rates significantly” could be challenged.
- XAU/USD volatility might receive more fuel.
On Thursday, the European Central Bank (ECB) will announce its monetary policy decision at 13:15 GMT. Later, at 13:45 GMT, ECB President Christine Lagarde will deliver a press conference.
Back on February 2, the ECB raised rates by 50 bps as expected. In the first sentence of the statement, the central bank said, “the Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2% medium-term target.” The forward guidance has been challenged during the last weeks by some members. They argue decisions should be taken meeting by meeting and based on incoming data. And then came the Silicon Valley Bank (SVB) drama. And then, Credit Suisse – Switzerland's second-largest bank – shares tumbled.
High inflation vs banking industry concerns
The ongoing turmoil in the banking system has become a factor of uncertainty. One more. Its impact is not yet defined. Contagion fears appear partially contained at times, but it could all change in the near future. The ECB has to decide on Thursday what to do with the mentioned context. The damage so far from the SVB drama is unknown. Such circumstances look unlikely to change the course of the 50 bps rate hike expected. ECB members are surely looking at recent developments, and the banking crisis could become the main focus; however, that will not change the fact that inflation is still very high. In February, the annual Consumer Price Index dropped modestly from 8.6% to 8.5%. The impact of the SVB and Credit Suisse crises is not enough, at the moment, to change the outcome on Thursday. It could change the projected path, the forecast of the terminal rate and the words of the statement.
Banking jitters are fresh arguments for the doves at the ECB in their debate against the hawks. With high inflation and interest rates well below inflation, it seems likely that not even the doves will want to make a pause on Thursday (maybe a smaller hike) unless more banks hit the headlines over the next hours. For the next meetings, the situation is evolving so fast that there could even be some hawks asking for a pause.
Lagarde’s press conference will be watched closely as usual, with the “extra” of the situation of the banking sector. Will she be able to lead the ECB to another significant rate hike after March? Will her message be conditioned by the opposition to “significant rate hikes ahead”?
Gold in the current context
The reaction in the currency market to the banking crisis has been milder compared to other markets, particularly bonds and commodities.
Gold price jumped to the strongest level in a month, with a rally of more than $100. The run could be attributable to the sharp decline in global government bond yields. The yellow metal held on to most of its gains despite the rebound in yields seen on Tuesday; yields resumed the decline on Wednesday, boosting Gold to fresh highs.
XAU/USD has been volatile in one direction despite the yellow metal usually offering impressive corrections. The ECB meeting arrives after a 7% rally in XAU/USD from last week's low. For Gold traders, it represents a factor that should be taken into consideration that could add fuel to volatility. Considering the last five ECB meetings, Gold reacted considerably in two.
ECB’s decision could have a large impact on Gold prices through yields. If what the central bank says creates noise in the bond market, Gold will likely follow. Largade has the capability of influencing interest rate futures. Gold is unlikely to remain steady at times when EUR/USD makes big swings.
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.
Follow us on Telegram
Stay updated of all the news
EUR/USD regains 1.0700 as US Dollar stays on the back foot
EUR/USD is trading above 1.0700, as bulls keep the reins for the second consecutive day early Thursday. The major currency pair fails to justify looming economic fears and upbeat US Treasury bond yields amid a broadly weaker US Dollar. Final Eurozone Q1 GDP eyed.
GBP/USD bulls ignore mixed BoE clues to prod 1.2450 as June Fed rate hike appears elusive
GBP/USD buyers occupy driver’s seat around 1.2450, despite marking a slow run towards the north heading into Thursday’s London open. The Cable pair buyers cheer the receding odds of a Fed rate hike in June while early signals for the Bank of England’s (BoE) interest rate guide appear mixed.
Gold to maintain $1,930 support on mixed growth, Fed concerns
Gold seesaws around intraday high as it prints mild gains after falling the most in a week the previous day. Even so, the XAU/USD remains indecisive on a weekly basis as the markets struggle for clear directions amid the pre-Fed blackout and mixed feelings about global growth concerns.
Dogecoin price could rally 30% if DOGE history over the last six months is enough to go by
Dogecoin price has been trading within a fixed range over the last six months, taking seasonal leaps as volatility increased. With this accumulation pattern, the king of meme coins could be en route to complete the next bounce cycle.
Plenty of hawkishness to go around
We haven’t seen a lot in the way of volatility and price action this week, but what we have seen is a clear message coming from many central banks. That message is one of hawkishness.