Euro turns lower after ECB delivered 50bps hike

As mentioned earlier, there was a great deal of uncertainty over whether the European Central Bank would opt for a 25- or 50-basis point rate hike today, which meant that the euro would move sharply based on the decision as the market was unsure.

Well, the euro surged higher after the ECB decided to hike the main deposit rate by 50 bp to zero, and introduced a new tool to counter “unwarranted, disorderly market dynamics.” But during the press conference, all of those gains evaporated.

The ECB has indicated that further normalisation of interest rates “will be appropriate.”

Some would argue that it was a bit careless on their part to hike by 50 bps given that their communication all this time was for 25 bps. But what really changed that decision was threefold:

First, the recent weakness of the euro meant that the eurozone was now importing more inflation than would have been the case had the single currency been stronger. This definitely encouraged the hawks to push for a 50 bp hike today.
Second, Eurozone CPI climbed to a fresh record high of 8.6% YoY in June, accelerating sharply from 8.1% in May. They simply cannot afford to just sit there and watch inflation continue to accelerate.
Third, all other central banks opted for larger increases than expected. The ECB had to surprise, otherwise the euro would have plunged – and they couldn’t risk that.

So, it was a case of common sense prevailing. Lagarde didn't try to put a bit of a dovish spin on that when she started the ECB press conference, although the euro lost all its previous gains when she was pressed about the new policy tool - Transmission Protection Instrument. .

At her press conference, President Lagarde confirmed that all countries will be eligible for TPI, and these are the four country criteria to be entitled:

1. Compliance with EU fiscal rules

2. Absence of severe macro imbalances

3. Fiscal/debt sustainability

4. Sound and sustainable macro policies

The ECB is now effectively deciding which country is fiscally solvent with sound policies. It is a dangerous territory to be stepping into. What about Italy? Will it be meeting these criteria? This may worry stock markets and send the major indices lower.

The EUR/USD rose along with the other euro pairs, most notably the EUR/JPY, before dropping during the ECB press conference.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.