EURO FORECAST:
- Euro[1] slides on Thursday after the European Central Bank monetary policy decision disappoints hawkish expectations
- ECB flags 25 bps July hike and leaves door open to larger increases in September, but President Lagarde fails to commit to a front-loaded tightening cycle during the press conference
- EUR/USD[2] could accelerate losses if May U.S. inflation data surprises to the upside
Most Read: US Dollar Price Action Setups pre-CPI - EUR/USD, GBP/USD and USD/JPY[3]
The European Central Bank released its June monetary policy decision today[4], but the details were mostly unimpressive, leading to a sharp drop in the euro against the dollar, despite an initial positive reaction. In New York afternoon, EUR/USD[5] was down 0.6% to 1.6050, after rising more than 0.2% in the early trade.
In terms of actions, the institution led by Christine Lagarde revealed that it would end net asset purchases (APP) on July 1, but the measure had been telegraphed well in advance, so it came as a surprise to no one.
Second, the ECB kept its key interest rates unchanged, but indicated that it intends to raise them by 25 basis points at its meeting next month. Hawks, who were expecting a large hike at liftoff, were dismayed by this guidance[6], but not entirely disappointed after the bank left the door open to a front-loaded policy response in September should the inflation outlook worsen.
The euro initially advanced after the ECB announcement crossed the wires, but then reversed lower during President Lagarde’s press conference. Lagarde failed to commit to pre-set tightening course, advocating for complete flexibility and optionality, a sign that policymakers may not be fully sold on the idea of aggressive adjustments in the fall or later,
