Four officials, including Luis de Guindos - Vice President - said ECB might raise its key rate from the third quarter.
Their comments clearly highlight the growing risk of inflation despite the deterioration of the growth outlook.
Pierre Wunsch one of the members said taking rates to 0 or slightly above ( - 0.5% currently) should be a no-brainer, unless very bad news arrives as a result of the war in Ukraine.
Swap traders are betting on three quarter-point increase by December.
Basis points of ECB rate hikes according to swaps:
- June: 4 bps
- July: 20 bps
- Sep: 40 bps
- Oct: 54 bps
- Dec: 75 bps
That means that the interest rate in EUR might be positive in October. If the future data relative to inflation confirm the view of ECB members, it will gradually help the EUR to reverse the downtrend.
News on FED’s pace hike
Nomura holdings now expect the FED to lift the interest rate by 75 bps at both June and July meetings, moves that would follow up an expected 50 bps hike in May.
This assumption would bring the USD fed rate to 2.33% by July.
The market is not there yet as the swap traders are pricing a less hiking pace: USD future interest rates according to swaps :
- June: 1.13%
- July: 1.45%
- Aug: 1.84%
What’s in the pipe?
- Manufacturing PMIs: Euro area, France, Germany, U.K, Friday
USD/JPY @ 127.95 - bullish trend
Williams %R: Overbought
Top break oblique resistance: 127.44
EUR/USD @ 1.0846 - Bearish trend
GBP/USD @ 1.3023 - Bearish trend
AUD/USD @ 0.7338
USD/CNH @ 6.4895
Top-break major horizontal resistance: 6.4854