ECB July Interest Rate Hike Outlook Expected in Lagarde’s Speech
Investors and traders expect to hear more about interest rate hikes in Europe during ECB President Christine Lagarde’s speech today. Growth expectations and inflation concerns are also front-and-center as equity and currency market players weigh the headwinds facing the Eurozone.
On the downside, Eurozone inflation hit 8.1 percent in May, meaning that price growth is far above the ECB’s 2 percent annual target. Christine Lagarde hinted that the ECB’s interest rate hike may come as soon as July 21, during the next policy meeting. The main refinancing rate is expected to rise from zero percent to 0.25 percent and the ECB is also likely to announce the end of its current bond purchase program.
EUR support?
Once the ECB raises interest rates in Europe, the EUR may see more support against the USD. Much of the currency’s strength depends on GDP growth. Growth in the Eurozone was comparatively strong in the first quarter, but the outlook was dimmer for Q2 because of the conflict in Ukraine affecting sentiment and the energy market.
Similar moves to hike interest rates in the US started in April, where there are now recession fears because of slower growth amid higher borrowing costs and elevated crude oil and other commodity prices. The Federal Reserve appears to have accepted the possibility of a hard recession after conducting banking sector stress tests on that basis. A recession in the US is likely to affect the Eurozone’s growth prospects.
On the upside, economically speaking, the hawkish central banks have started the hard work of rebalancing monetary policy geared towards lower global debt levels in order to tame inflation. This triggered bearish sentiment in the stock markets over the last two weeks as investors priced in the higher risks of a recession and more barriers to liquidity for corporations.
In other news, Australia announces Retail Sales for May, which are expected to have fallen to 0.4 percent from 0.9 percent in April. Like many other countries, Australia faces high inflation and tighter monetary policies, both of which can affect consumer spending.
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