The European Central Bank is widely expected to keep its deposit facility rate unchanged at 2.25% today. However, the OIS market has increased the odds for a September hike to more than 60% from the latest rebound in Brent crude prices above $90 per barrel. ECB President Christine Lagarde had rejected the idea that June’s 25-bps hike was an insurance hike, framing it as necessary because medium-term core inflation projections remained above the 2% target across the ECB’s multiple economic scenarios under its Framework Guidance.
Hence, Lagarde is unlikely to let markets treat September as the end of the hiking cycle, particularly with the re-escalating US-Iran conflict threatening to ignite broader regional instability and energy volatility. Tomorrow, an ECB Survey will likely show 1-year inflation expectations slowing from 3.5% in May to 3.2% in June, remaining high and above the official 2% inflation target.
EUR/USD appears supported at the floor of its broad 1.14-1.20 range set in mid-2025. Despite this month’s rebound in Brent to $95, 1-month implied volatility for EUR/USD remained depressed at the year’s low, slightly below 5%, and did not spike as it did after Operation Epic Fury’s launch. This could be attributed to the EUR’s decline alongside crude in May-June, raising the question of whether the reverse should also be true. So far, Lagarde has been more willing than Fed Chairman Kevin Warsh to achieve price stability with rate hikes.
Quote of the Day
”The greatest obstacle to discovery is not ignorance - it is the illusion of knowledge.”
Daniel J. Boorstin
July 23 in history
In 1995, astronomers Alan Hale and Thomas Bopp independently discovered Comet Hale-Bopp, which became one of the most widely observed and brightest comets of the 20th century.
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