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ECB hikes rates, warns another is coming

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By Craig Erlam  

The ECB raised interest rates by another 25 basis points on Thursday and signaled there’s more to come as it significantly revised up its core inflation forecasts for this year and next.

Prior to the meeting, markets were pricing in a hike, but perhaps no more after, something President Lagarde sought to actively discourage.

During the press conference, Christine Lagarde stated that, “barring material change, very likely that we will continue to raise rates in July”, while also insisting that the committee is not thinking about pausing.

The hawkish language is perhaps not surprising, but the explicit nature of those comments when referencing the next meeting was arguably more so than markets anticipated.

Those words only marginally impact people’s expectations ahead of the next meeting, as the ECB has been quite explicit before and then not acted accordingly. But it does suggest the data needs to improve significantly before then if the central bank is going to change its mind.

The euro appeared to hold onto the bulk of the gains made in the aftermath of the announcement and the press conference while the same wasn’t necessarily true of yields which seemed to give most back.

Oil volatile near lows

Oil prices remain volatile after inventory data published by the EIA reported a substantial 7.9 million barrel build last week.

Brent saw its gains on the day wiped out, while WTI slipped back below $70. We’re seeing oil recover some of those losses, but it remains not too far from its 2023 lows.

There has been a little more cause for optimism in recent days – EIA data aside – with the US Federal Reserve pausing its tightening cycle after another promising inflation report.

This followed a very good eurozone report – although Thursday’s forecasts suggest the ECB isn’t getting carried away – and interest rate cuts in China. These are small positives, but it could be enough to stop crude from making fresh lows for the year.

Gold recovers after post-Fed slide

Gold prices rebounded on Thursday after initially slipping below $1,940 earlier in the session. The yellow metal appeared to be responding to the hawkish pause from the Fed as markets appeared to price out rate cuts this year, alongside a strong chance of another hike in July.

But it recovered in the final hours of the day, perhaps alongside a strengthening euro which is pressuring the dollar.

Jobless claims were also much higher than anticipated, which possibly points to some cracks appearing in the labour market. Although as we’ve seen in recent months, that data can be noisy.

If gold maintains the $1,940-1,980 range, it would perhaps be surprising given everything we’ve seen and heard this week. It will be interesting to see if that continues to hold as the narrative on the Fed appears to have shifted in recent days. Unless of course, traders are gradually deciding to disregard forecasts, as they have in the past.

Bitcoin wiped out half of 2023 gains

Bitcoin fell to its lowest level in three months and remained under pressure on Thursday.

It broke below $25,000 in the process, a region that looked like a significant area of potential technical support which will make a further decline all the more interesting.

The next area of technical support may be at $24,000, which would represent a 50% correction of the 2023 rally.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.