Yesterday was the big day for markets and risk sentiment affecting all assets, as the FED met to raise rates once again, this time slowing down to 50 basis points (bps). Today is another important day though, as three major central banks also raised rates by 0.50%. The Swiss National Bank did so this morning, followed by the Bank of England while the European Central Bank (ECB) is closing the most hawkish year ever for central banks.

The ECB raised interest rates as well, also slowing down from the previous meeting when they hiked rates by 0.75%. This hike was priced in already, so the market was more interested in the statement and press conference from ECB president Christine Lagarde. Below is the rate decision by the ECB:

EUR/USD H1 Chart – Pushing Above 1.07

Buyers are back in charge as the price heads for 1.10

EUR/USD jumped 150 pips higher in Tuesday after the soft US consumer inflation report CPI. Yesterday we saw a dip after the FED rate hike, but then buyers came back in as the USD reversed down and ended up higher. Today we saw a retreat during the Asian session and the European sessions, but the price jumped around 130 pips higher after the comments by the ECB that they will press on with rate hikes. We decided to open a buy EUR/USD signal after the pop above 1.07 and missed our take profit target by just a few pips, but buyers still remain in charge.

ECB Monetary Policy Decision – 15 December 2022

• Main refinancing rate 2.50% vs 2.50% expected
• Prior refinancing rate was 2.00%
• Deposit facility rate 2.00% vs 2.00% expected
• Prior deposit facility rate wS 1.50%
• Marginal lending facility 2.75%
• Prior marginal lending rate was 2.25%

• Interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure timely return of 2% inflation target
• Expects to raise rates significantly further, because inflation remains far too high and is projected to stay above the target for too long
• APP portfolio will decline at a measured pace from March 2023 onwards
• The decline will be €15 billion per month on average until the end of Q3, then subsequent pace will be re-determined
• Euro area economy may contract in the current quarter and next quarter
• Growth to be subdued next year, revised down significantly compared with previous projections
• Sees euro area economy growing by 3.4% in 2022, 0.5% in 2023, 1.9% in 2024 and 1.8% in 2025
• Sees euro area inflation at 8.4% in 2022, 6.3% in 2023, 3.4% in 2024 and 2.3% in 2025
• Full statement

At first glance, this is more of a hawkish tilt by the ECB as they reword their forward guidance to say that “interest rates will still have to rise significantly at a steady pace”. They do that while reaffirming that future policy decisions will continue to be data-dependent. As such, you have to wonder whether there was a split and by how much to today’s decision, between a 50 bps move and a 75 bps one.

Besides that, everything is as per what you’d expect from the ECB as they go hard on the language after having revised higher their inflation forecasts for next year. That is pretty much saying that they are determined to fight the inflation battle regardless of the slowdown in the economy.

EUR/USD Live Chart