The likelihood has risen that the European Central Bank (ECB) might really take action, rather than just talk, and might hike its key rate by an impressive 75 bps next week. Nonetheless, the market would probably sell the euro in an initial reaction, according to economists at Commerzbank.

ECB still has some convincing to do in its comments to ensure its credibility with the markets

“I see a chance that the euro might find some support in case of a 75 bps rate step next week. However, the ECB still has some convincing to do in its comments to ensure its credibility with the markets, proving that it will also tolerate economic pain to effectively deal with price risks. Only at that point would the euro be able to actually benefit from the ECB’s monetary policy in a more sustainable manner.”

“In a crisis, the market would probably sell the euro in an initial reaction due to recession fears. The ECB’s determination to fight inflation would likely only have a positive effect on the single currency at a later stage – if the ECB really were to stick to its approach at that point. That means the euro bulls will probably have to be patient for some time yet.”