Euro: Weakens despite ECB rate hike signals against US Dollar – UOB

UOB Global Economics & Markets Research reports that EUR/USD slipped 0.3% to 1.1377 as the Euro (EUR) weakened against the US Dollar (USD) despite the European Central Bank (ECB) leaving rates unchanged and President Lagarde acknowledging some calls for a hike. Markets interpret her comments and Bloomberg’s take as pointing to a bias toward further tightening, with September seen as a likely window for another move.

Lagarde hints at possible September move

"The European Central Bank’s (ECB) at its July monetary policy meeting, held its policy interest rates unchanged in a unanimous decision, as widely expected."

"And while the decision was unanimous, ECB President Lagarde told reporters that some colleagues raised the question of whether to act now and pledged to look closely at new data over the coming weeks."

"While the ECB stuck with its standard insistence on taking a “meeting-by-meeting” approach to setting monetary policy, Bloomberg noted the remarks amount to the clearest sign yet that policymakers are minded to keep tightening, not least with war flaring up again in the Middle East, and the Sep meeting is widely seen as a natural point to deliver another move, backed by new quarterly staff forecasts, inflation prints for the two prior months and more economic data including several business surveys."

"The euro also weakened against the USD, even as ECB Lagarde was seen to be signalling a potential tightening in the Sep meeting."

"The EUR/USD closed the session down at 1.1377 (from 1.1412), a 0.3% depreciation."