• ECB will ensure that the policy rates will be brought to levels sufficiently restrictive
• ECB expects to discontinue the reinvestments under the APP as of July
• ECB slows rate hiking pace to 25bps (as expected), bringing key rate to 3.75%

The ECB kept the door open for more hikes but it looks like they are positioning for the June or July meeting to take rates to a restrictive level.  They will be data-dependent as they are aware that the lags and strength of transmission to the real economy remain uncertain. Inflation is too high so they had to say that they will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target.

The ECB slowed their rate hiking pace to a quarter-point, bringing the Main Refinancing Rate to 3.75%, one of the lowest rates against the other major central banks.  These last few meetings were supposed to be the time when the ECB plays catch up with their rate hikes, but it is starting to look like they might be done tightening soon.

The euro tumbled alongside European bond yields after the ECB statement.  US jobless claims posted the biggest rise in six weeks and a hot unit labor cost report for the first quarter also gave the dollar some support.  Jobless claims rose 242,000, slightly above the 240,000 consensus estimate and an increase from the prior 230,000 reading.  The US labor market is softening, albeit not quickly enough to justify rate cuts. Sticky US inflation should keep the Fed on hold until year end.

All eyes will be on ECB’s Lagarde press conference as she will have a lot to clarify from the statement.

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Ed Moya

Senior Market Analyst, The Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.

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• Source: https://www.marketpulse.com/newsfeed/euro-craters-after-the-ecb-signaled-they-are-almost-done-tightening/emoya