Eurozone Economy Hangs on the ECB’s Next Move

The Eurozone’s economy hangs on the European Central Bank’s (ECB) next move, having reached the tipping point between loose monetary policy and inflation. The ECB’s interest rate guidance at the time of writing is 0 percent, while inflation ballooned to 8.6 percent in June on an annual basis.

The central bank appears aware of the risks and for the first time in 11 years is leaning towards a 0.25 to 0.50 percent interest rate hike. The ECB’s monetary policy meeting is tomorrow, Thursday July 21.

The EUR has gained ground on speculation that the ECB will decide on the more hawkish option of a 0.5 percent rate hike, but has a long way to go after several months of weakness versus the USD. It’s reasonable to expect that if the ECB doesn’t take firm action, the trading markets may lose confidence and the EUR could see another sell-off.

As the ECB turns from a dove into a hawk, that leaves just the Bank of Japan (BoJ) flying the dovish monetary policy flag out of the G7 countries. Unless, of course, the BoJ offers a surprise in its July interest rate decision. Japan’s central bank meets on July 21, the same day as the ECB does. The JPY currency pairs could move if there are any unexpected moves from the BoJ.

In other trading news, the UK released Consumer Price Index (CPI) data for June this morning.  The benchmark was expected to rise from 9.1 percent to 9.3 percent, but the final result was 9.4 percent. This may set expectations for another rate hike by the Bank of England.

Bank of Canada reports the latest CPI results for June today. Inflation is expected to have risen from 6.1 percent previously to 6.7 percent on an annual basis.

In earnings news, mega-cap green carmaker Tesla releases its second-quarter earnings today. The stock has gone through considerable turbulence as Elon Musk’s contentious Twitter acquisition played out in the media. COVID-19 headwinds in China sweeping through the car production industry haven’t helped matters. In addition, the conflict in Ukraine inflated raw material prices, and this may have impacted on the bottom line.

These adverse economic and geopolitical forces are expected to have trimmed Tesla’s revenue for the period.

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