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Investors are not waiting for the central bank’s interest decision with great curiosity, as they know that it will not change in this meeting, but all eyes are directed towards what the European Central will reveal regarding raising interest rates at the upcoming July meeting, which is the first meeting that will take place after the Central ends its purchases. Official net assets of the country, ready for the next step, which is to raise interest rates.
Today’s meeting is particularly exceptional, as it will be the first outside Frankfurt since the outbreak of the Corona virus pandemic, and the meeting will take place in Amsterdam, the Netherlands.
The biggest concern for European and global markets is high inflation, which is what the Group of 19 countries are suffering from, as the consumer price index on an annual basis reached a new record in May.
The main question in the minds of investors and economists is; How fierce the shift will be over the coming months, and some analysts are reported to have changed their estimates for a larger increase in September at the latest.
“A handful of board members are already open to a 50 basis point increase,” Mark Wall, chief economist at Deutsche Bank (ETR:DPWGn), said in a research note hinted at by CNBC.
“We believe the ECB continues to play down inflation and expect support for a 50bp hike to increase as the summer progresses.”
Important decisions in today’s meeting
The ECB will also publish its new Task Force growth and inflation forecasts this week and market participants will likely be watching 2024 inflation figures closely as this represents the ECB’s medium-term target rate.
The European Central Bank is also expected to cut its growth forecasts and revise its inflation forecasts upward, with the 2024 inflation figure likely to reach 2%, the ECB’s medium-term target.
Inflation..a chronic headache
Consistently high inflation is the overriding concern of policy makers on the European Central Bank’s Governing Council.
“Inflation is not only very high, but also very broad,” Francois Villeroy de Gallo, the governor of the French central bank, said last week at a conference in Paris. “This requires the normalization of monetary policy – I say normalization, not tightening.”
While inflation, and fighting it, are of course the primary task of the ECB, the issue of retail risks is likely to be addressed this week as well.
European bonds
Bond markets have already responded to the end of asset purchases and reassessed the various risks associated with different Eurozone countries.
As a result, the spread between German and Italian bonds has widened. The 10-year spread was above 200 basis points on Monday, compared to less than 140 basis points at the start of the year
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The euro-dollar pair is trading at 1.0720, with marginal movement ahead of the European Central Bank’s decision, while the US dollar index is falling due to the decline in US bonds, and now it records 102.410, down by 0.13%