ECB: Room for one more rate hike before core inflation turns definitively downwards – SocGen

FXStreet Insights Team FXStreet

The ECB delivered a 25 bps rate hike as expected. Economists at Société Générale expect one more 25 bps hike from the ECB in September.

ECB moves to full data dependency

The ECB hiked rates by another 25 bps, as signalled in June, taking the deposit rate to 3.75%. Instead of signalling any particular action in September (apart from ruling out rate cuts), ECB action at the coming meetings will now be fully data-dependent, implying that rates may still rise after a pause.

The ECB also reduced the remuneration of minimum reserves to 0% – due to their small size, this is unlikely to impact the policy stance and market rates. This shows that the ECB is sensitive to the losses generated by so much excess reserves. We think the theme of reducing losses will continue next year, via ramped-up QT.

We still see room for one more rate hike before core inflation turns definitively downwards, but the latest weakening in the flow of economic data also suggests that the September decision will be a tight call.

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD off highs, back to 1.3620

GBP/USD remains slightly on the defensive at the end of the week, receding to the low 1.3600s after hitting fresh tops past 1.3670 earlier in the day. Cable’s correction comes after two daily gains in a row and amid a tepid advance in the Greenback, while poor UK data also accompany the downside.

EUR/USD treads water below 1.1700

EUR/USD now trades with modest losses around 1.1670 following another unsuccessful atempt to advance past 1.1700 the figure in a convincing fashion. The pair’s decline follows a maginal rebound in the US Dollar as market participants continue to assess recent US data as well as developments from the US bond market.

Gold trims gains, recedes to the sub-$4,600 area

Gold rapidly leaves behind Thursday’s inconclusive price action and advances markedly on Friday, briefly surpassing the $4,600 mark per troy ounce to hit three-month peaks. Meanwhile, the precious metal’s solid performance comes despite marginal gains in the buck coupled with another day of rising US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP bulls accelerate rally amid rising ETF inflows

The cryptocurrency market remains bullish on Friday, led by Bitcoin’s surge above $77,000. Altcoins, including Ethereum and Ripple, mirror BTC’s positive outlook, trading near $2,400 and $1.35, respectively.

Week ahead – Fed’s Jackson Hole and Nvidia earnings to dictate markets

Kevin Warsh to make his Jackson Hole debut amid confusing messaging. But a major hawkish surprise unlikely after bond market intervention. Nvidia earnings to also determine market direction as stock rally cools.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.