Thursday will bring the latest European Central Bank interest rate meeting, and some analysts think the central bank may go big.
Last month saw a 50bps rate hike to 0.50%, and the forecast for this meeting is a 75bps move to 1.25%.
EURGBP-Daily Chart
The daily chart shows that the euro has been on a good run against the pound sterling lately. From lows of 0.835 in early August, the pair is now aiming for the highs of mid-June.
The size of the European Central Bank hike, alongside the press conference statement, could swing this for a breakout or correction. The meeting should give us that signal by the end of the week. The June highs were a spike, and this 0.867 level can be trusted as resistance for a move to new highs. If the market is bearish on the ECB’s monetary policy path, we could see a correction to 0.850.
The euro was already boosted by the news today that GDP estimates for the third quarter came in higher. The economy is expected to return to growth of 0.8% in Q3, compared to the previous forecast of 0.6%. That sets up a year-on-year figure of 4.1% versus 3.9%. The euro has its problems with energy at the moment, but every little helps in the race to avoid a recession.
The pound has been under pressure as the new Prime Minister, Liz Truss, is expected to announce large measures to tackle higher energy prices. These are expected to add to the country’s debt pile rather than be paid via a windfall tax.
ING analysts said that a 50bps hike would not be good news for the euro, saying
“We think a 75bp move would be too hard to digest for the dovish front within the Governing Council, and our call is for a 50bp move.”
“Any hints about future policy will also drive much of the market reaction,” they added.
They predicted that after the ECB meeting, the market would return its focus to energy.
