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By: Editorial Team, StoneX Media
Markets are pricing an 85% probability of a 25 basis point move in September, which is why an ECB September rate hike, not the July meeting, is the European Central Bank's real decision point. A July hold looks close to settled after June inflation data softened, with headline consumer prices at 2.8% and core inflation easing to 2.4%. What reopened the debate was a renewed jump in energy prices tied to Middle East tension, reviving inflation questions the European Central Bank had appeared ready to set aside. September is where those questions get resolved.
Fiona Cincotta is a Senior Market Analyst at StoneX with more than 15 years analyzing UK, European and U.S. markets across forex, equities and commodities. She tracks European monetary policy and the currency reaction to it, the two threads that run through the question of what the European Central Bank does next.
The European Central Bank is expected to leave interest rates unchanged in July, which places the weight of the tightening decision on September rather than the current meeting. "I think the case does still point to the ECB leaving interest rates unchanged in July" Cincotta notes, citing encouraging June inflation and little evidence of second-round pressures. The path to September is not fixed, because the same energy prices that revived the debate could reverse it, and as she adds, "if we do see prices easing quickly, that could lower inflationary expectations again". With no new staff forecasts at this meeting, the European Central Bank has room to wait for clarity before committing.
Markets are pricing an 85% probability of a 25 basis point rate increase from the European Central Bank in September, and the July meeting could sharpen the debate that decides it. "the meeting could pave the way for a more heated debate between the hawks and the doves ahead of a potential rate increase in September", Cincotta explains, framing July as the opening of that argument rather than its conclusion. A firmer signal from the hawks would feed straight into rate expectations and the currency, and in her view, "if we do hear more of a hawkish tone surrounding this meeting then we could find that those expectations increase, which also may help lift the euro". For euro traders, the July tone is the clearest early read on where September, and the currency, may head.
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--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Fiona Cincotta, Senior Market Analyst
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When macroeconomic catalysts fade, technical analysis often becomes the primary framework for navigating currency markets. With Federal Reserve expectations largely settled and only limited economic releases scheduled, traders are increasingly relying on key price levels rather than headlines to determine the next move in USD/CHF.
A softer set of June inflation numbers had all but sealed a July hold, until a jump in energy prices and fresh Middle East tension reopened the eurozone inflation debate. The decision that really matters is now taking shape for September, where markets are already leaning toward a rate hike.
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