Economists at MUFG Bank outline their thoughts on the likely impact of today’s ECB policy meeting on the Euro.

Two reasons why support from a hike is set to prove short-lived

If the ECB hikes rates today we expect EUR/USD to stage a short-lived rally up towards the 1.0800 level. 

There are two reasons why we expect support from a hike to prove short-lived. Firstly, we expect the ECB’s updated forward guidance to provide a stronger signal it could be the last hike in the cycle as they shift their focus towards keeping rates higher for longer to get inflation down. Secondly, hiking rates into a weak economy with growth likely to contract again in Q3 is not as favourable for the Euro. It has been the relative growth performance that has helped to drag down EUR/USD recently.