ECB Hikes by Half-Point and Signals Same Again in March
Comment of the Day

February 02 2023

Commentary by Eoin Treacy

ECB Hikes by Half-Point and Signals Same Again in March

This article from Bloomberg may be of interest to subscribers. Here is a section: 

The European Central Bank lifted interest rates by a half-point, with President Christine Lagarde saying another such move is almost certain next month, despite conceding that the inflation outlook is improving.

Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve moderates the pace of its own hikes.

In a statement, the Governing Council said it “intends” to raise rates by another 50 basis points at its March meeting, then “evaluate the subsequent path of its monetary policy.”

Eoin Treacy's view

The ECB may hike again at the next meeting but clear implication is the peak of the hiking cycle will be lower than the USA’s. The same is true for the Bank of England. The vast sums spent to avoid an energy crisis mean governments will be under pressure to contain costs in future. That will siphon money from speculative activities and help to contain demand driven inflationary pressures.
The Euro paused today at the $1.10 level but a sustained move below $1.05 would be required to question recovery potential.
The Pound also paused at the $1.25 area as it continues to consolidate.
The Europe STOXX 6000 remains on a recovery trajectory.
The FTSE-250 has also clearly broken its downtrend. 

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