The ECB faces a very difficult decision today, where market conditions are interfering with plans to hike 50 bps. What about the EUR impact? Economists at ING analyze how the shared currency could react to the interest rate decision.

ECB will struggle to thread the needle

“While our call is for a 50 bps hike, we wouldn’t be shocked to see an ECB hold today. A 25 bps move seems the least likely scenario.”

“If the ECB 50 bps hike comes in an environment where markets are scaling back concerns on the banking sector thanks to the support from the SNB, then this may actually be read as a signal of confidence by Frankfurt on the health of the Eurozone banking system, and can ultimately lift the Euro.”

“Should the ECB force a hike in a still fragile environment for the European banking sector, the impact on EUR/USD may actually be negative, as investors see this as another major risk for the financial stability in the area, while the simple repricing higher in ECB rate expectations is statistically not enough to boost the Euro.”