Midday Brief – ECB Hike Rates

The euro currency rallied back towards the best levels of the week against the US dollar after the European Central Bank raised interest rates by another 25 basis points during its June meeting.

Today’s decision by the ECB now brings the rate on main refinancing operations to 4%, the highest level since the 2008 financial crisis, and the rate on deposit facility to a 22-year high of 3.75%.

It was the eighth consecutive rate hike, even though the bloc entered a recession at the beginning of 2023 and as both the headline and core inflation rates remain significantly above the ECB’s target of 2%.

The ECB has already raised rates by an unprecedented 375 basis points over the past year, representing the fastest tightening pace in the bank’s history.

President Christine Lagarde’s press conference will be closely analysed for any hints regarding the potential peak of interest rates, with markets anticipating a single additional quarter-point hike to occur in July.

Traders now await the scheduled speech by Lagarde, however, they do have some data to digest in between in terms of the NY Empire State Manufacturing Index unexpectedly sank to -31.8 in May of 2023 from 10.8 in April.

Last month’s reading compared to forecasts of -3.75. It is the lowest reading in four months, pointing to a sharp drop-in manufacturing business activity in New York State, after a big rebound in April.

Traders also await US retail sales figures. Retail sales in the US increased 0.4% in April rebounding from two consecutive months of declines, but well below market forecasts of a 0.8% increase. Another positive reading should set a positive tone.

Futures markets in the US look set to open positively as the A.I. boom driver’s tech stocks to new highs. Things also look positive in Europe for stocks. Gold trades down close to 0.8% percent today after the Fed refrained from hiking.