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The ECB 50bp rate hike brings volatility, but dollar strength fails to go away. Meanwhile, the reopening of the Nord Stream gas pipeline has sent energy markets lower across the board.
ECB hike beats expectations, with euro weakness a risk to inflation
“Volatility has been the name of the game this afternoon, with Cristine Lagarde announcing an unexpected 50 basis point rate hike in a bid to stabilise the euro and stave off inflation. Unfortunately for EURUSD bulls, today’s rate rise does still keep us on track to see US-eurozone interest rates diverge given the 83% expectations of a 75-basis point hike from the Fed next week. With Lagarde’s predecessor Mario Draghi hitting the news today, it is interesting to see how we are currently in a position where the ECB want to drive the euro higher rather than the bearish jawboning undertaken back in Draghi’s day. While a weak euro can help raise demand for eurozone businesses, the ECB will be well aware of its role in raising inflation as imports become increasingly expensive.”
Energy prices slump as fears of a Russia gas shutdown ease somewhat
“Fears that Russia will keep the gas pumps shut after the 10-day Nord Stream maintenance period have been allayed, with European nations breathing a sigh of relief as the key energy source starts to flow once again. Today’s sharp declines throughout gasoline, crude, natural gas, and heating oil prices highlight recent speculation over the potential implications if Russia ratchets up the pressure on Europe by keeping the pipeline shut. Nonetheless, traders should keep a close eye out for indications over quite how much product is flowing through the pipelines, with some fearing Russian manipulation of supply given Gazprom’s recent force majeure letter to European buyers.”
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