- The European Central Bank has raised rates by 50 bps as it originally intended.
- While acknowledging the issues at banks, the ECB expresses confidence of weathering the storm.
- One noteworthy change is a lack of new rate guidance.
- The Euro is set to extend its recovery following the ECB, assuming no new disasters.
"There is always more than one cockroach" – this adage about banking crises is spooking markets, but the European Central Bank (ECB). The Frankfurt-based institution has expressed confidence in its insecticide and investors are buying it – at least for now. The common currency looks bullish.
After Silicon Valley Bank (SVB) collapsed, vigilantes, moved to the weakest link in the old continent, Credit Suisse. Now that the embattled lender has been stabilized by the Swiss National Bank (SNB), some are looking for the next "cockroach" to appear. Nevertheless, the ECB leans on lessons learned from the previous crises. Moreover, it is focused on fighting inflation and acting – in another show of confidence.
In the past, the ECB mistakenly raised rates when everything was collapsing. Both in 2008 and 2011, the Frankfurt-based institution's instinct to kill rising prices only exacerbated the economic crisis. They also put banks at risk. That was in the times of Jean-Claude Trichet as ECB President. His compatriot Christine Lagarde faces a different set of circumstances – and her actions seem more justified. Banks are better capitalized, and regulators are far more alert.
The bank raised rates by 50 bps points as it had intended to before the new crisis, and as it promised in the previous rate decision. The single noteworthy change is a lack of guidance toward the future. The ECB only pledges to being data-dependent. It is also dependent on the banking crisis.
As long as nothing breaks in the old continent's banking system – like it seemed a decade ago – the eurozone economies have room to thrive in a sounder environment. So does the common currency.
If a full week passes without fresh bank collapses, I expect ECB officials to provide unofficial guidance about raising rates, further boosting the Euro.
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
AUD/USD consolidates its losses around 0.6360 ahead of RBA rate decision

The AUD/USD pair consolidates its recent losses above the mid-0.6300s during the early Asian session on Tuesday. Traders prefer to wait on the sidelines ahead of the Reserve Bank of Australia (RBA) monetary policy meeting on Tuesday.
EUR/USD slides further under 1.0500 as DXY rises above 107.00

EUR/USD continued to face downward pressure and dropped below 1.0780, reaching the lowest intraday level since December of last year. The pair remains under pressure as the US Dollar maintains firm support due to higher US yields and cautious market sentiment. The DXY rose above 107.00 for the first time since November.
Gold approaches $1,800 as demand for the USD prevails

Spot Gold fell to a fresh multi-month low of $1,827.11 a troy ounce on Monday amid resurgent US Dollar demand. The Greenback suffered a minor setback at the beginning of the week, as generally encouraging Chinese data and upbeat United States (US) news underpinned the mood.
Bitcoin price macro outlook remains uncertain, analyst says

Bitcoin price is still not in the clear, according to analyst and trader Rekt Capital, who explores the price action on a macro perspective. It comes after the big crypto leaped almost 5%, testing the $28,600 levels before a retraction.
PMIs paint a bleak picture for manufacturing but China offers hope

Manufacturing PMIs released throughout the day have made for pretty miserable reading and even those in China barely registered any growth after a lengthy period of contraction. The Chinese data did offer some cause for hope at least, despite ultimately barely sitting in growth territory.