European Central Bank: One more hike base case as data soften – OCBC

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OCBC strategists Christopher Wong and Sim Moh Siong highlight that the European Central Bank (ECB) justified its recent rate hike in June minutes while maintaining flexibility for future decisions. Despite this, oil prices have plummeted, and June CPI data came in weaker than expected, softening inflationary pressures. The ECB’s cautious stance reflects a balance between controlling inflation and avoiding economic stagnation.

This development impacts forex markets, particularly the EUR/USD pair, as traders assess the ECB’s resolve to continue tightening. The divergence between the ECB and the Fed’s monetary policy paths could widen, affecting cross-currency trades. Commodity-linked currencies like the CAD and AUD may also face pressure due to falling oil prices.

For markets, the focus shifts to upcoming ECB meetings and whether softer data will delay further hikes. Traders should monitor July CPI and economic indicators for clues. The ECB’s flexibility may lead to a pause in rate increases if inflation cools faster than anticipated, altering the EUR’s trajectory.