EUR/JPY under pressure after the ECB

• EUR/JPY pressured by ECB event.
• Lagarde holds a press conference after the 50bp rate hike.

The pair USD/JPY is under pressure, down 0.7%, as the euro is sold on today’s 50 basis point rate hike by the European Central Bank, putting the deposit rate at 3.00%.

The ECB also underlined that it will regularly assess how TLTROs affect its monetary policy stance: “The bottom line is that the Governing Council remains very concerned about inflation: the first sentence of the post is ‘Inflation is expected to remain too high for too long. The ECB doesn’t seem to want to stop raising rates just yet, but the statement pretty well reflects the increased uncertainty going forward,” analysts at TD Securities say.

ECB rate hike

• Main refinancing rate at 3.50% compared to the previous 3.00%.
• The interest rate of the marginal credit facility rises to 3.75%, compared to the previous 3.25%.
• The deposit facility stands at 3.00%, compared to the previous 2.50%.

Key statements from the ECB statement

• It refrains from pointing out future rate movements in the statement.
• Inflation is expected to stay too high for too long.
• An average inflation of 5.3% is expected in 2023, 2.9% in 2024 and 2.1% in 2025.
• Forecasts were made before the market turmoil.
• The high level of uncertainty reinforces the importance of a data-driven approach to the ECB’s policy decision, which will be determined by its assessment of the inflation outlook in the light of incoming data and dynamics.
• The banking sector is resilient, with strong capital and liquidity positions.
• The policy toolkit is fully equipped to provide liquidity support to the eurozone financial system if necessary.

Meanwhile, markets are now pricing the terminal rate at 3% and the euro is under pressure.

Markets are awaiting the ECB Governing Council press conference:

ECB President Christine Lagarde explains the Governing Council’s monetary policy decisions and answers questions from journalists at the Governing Council press conference.

The key here is how the governor is leading the markets on the path of rate hikes given the lack of substance in the statement.