The ECB July meeting comes to an end today. Later in the European session, the central bank will deliver its monetary policy decision and forward guidance for the period ahead.
The European Central Bank (ECB) July meeting is upon us as the central bank delivers its statement in a few hours from now. The focus of the press conference will be on forward guidance.
Most likely, the ECB will signal policy accommodation for longer. However, chatter in the market before the ECB meeting suggested that the Governing Council members disagree on the stimulus guidance draft.
If that is the case, inflation is the only reason for the disagreement. While the Eurozone inflation did not rise as much as the US one, it is nearly up to the ECB’s price stability level – close to 2%.
Inflation in Europe is driven by a small number of goods and services, and the fear is that the Eurozone economies will import the much higher inflation from the US. For example, the Dutch house prices rose a whopping 14.6% YoY in June, which is the biggest increase since December 2000.
If the ECB chooses to overstimulate the economy for a sustained period, temporary factors will result in some prices going through the roof, at least for a while, similar to the case of Dutch houses. However, the fear of rising inflation was exactly the reason why the ECB increased rates in the middle of the last crisis.
Therefore, any signal of earlier tightening will move markets today.
Euro Traded in a Tight Range Ahead of the ECB Meeting
The euro traded in a tight range for the entire week. It usually does so ahead of an ECB meeting.
The EUR/USD is back to its opening levels for the week as traders await the ECB decision. No one wants to take risks until the ECB delivers its forward guidance, and the pair found strong support in the 1.1750 area.