The ECB decision and the subsequent press conference by ECB President Christine Lagarde were essentially non-events in terms of content. The ECB is largely satisfied with the inflation trend, Commerbank’s FX strategist Ulrich Leuchtmann notes.

September is when the next rate move is to come

“September is still the date on which the next interest rate move is highly likely to come. Everything went as expected, which is why market-based expectations of the ECB have hardly changed at all. The fact that EUR/USD had to give up the 1.0930 area during the press conference cannot seriously be explained by a surprise in Thursday's ECB communication.”

“We saw yesterday that the US Dollar (USD) weakness of the previous days was partially reversed. USD was able to regain ground yesterday against almost all G10 currencies. That part of the previous strength of the USD was due to the fact that all market participants believed that everyone else would assess the it as weaker. ‘Bubble’ is the technical term for such a phenomenon.”

“Ultimately, the market is a succession of larger and smaller bubbles. And in the long term it produces significantly less volatility than all attempts to set exchange rates by fiat. In any case, for such a bubble to burst, it is enough for EUR/USD not to rise any further and for some trivial event to occur, like an ECB press conference at which Lagarde says pretty much what was expected.”