The likelihood has increased that the European Central Bank (ECB) will take action, rather than just talk, and raise its key rate by an impressive 75 basis points next week. Nevertheless, the market would probably sell the euro in a first reaction, according to Commerzbank economists.
The ECB still has to convince in its comments to ensure its credibility with the markets
“I see a chance that the euro will find some support in the event of a 75 basis point rate hike next week. However, the ECB still needs to convince in its comments to ensure its credibility with the markets, showing that it will also tolerate economic pain to deal effectively with price risks. Only then can the euro really benefit from the ECB’s monetary policy on a more sustainable basis.”
“In a crisis, the market would probably sell the euro in an initial reaction due to recession fears. The ECB’s determination to fight inflation would probably only have a positive effect on the single currency at a later stage – if the bank really remained in focus at the time. This means that euro bulls will probably have to be patient for some time“.
Source: Fx Street
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