(Kitco News) - The European Central Bank (ECB) has hiked rates by 50 BPS
Prior to the event, it was fully expected that the ECB would raise rates but there was a question as to if it would be 25 or 50bps. BNP Paribas wrote “We expect the ECB Governing Council to stick to the plan it agreed on 9th June and deliver a 25bp hike on 21 July to -0.25% – its first rate rise in over a decade – while at the same time effectively committing to at least another 50bps at September's meeting,"
The statement said: Today, in line with the Governing Council's strong commitment to its price stability mandate, the Governing Council took further key steps to make sure inflation returns to its 2% target over the medium term. The Governing Council decided to raise the three key ECB interest rates by 50 basis points and approved the Transmission Protection Instrument
The Governing Council assessed that the establishment of the TPI is necessary to support the effective transmission of monetary policy. In particular, as the Governing Council continues normalising monetary policy, the TPI will ensure that the monetary policy stance is transmitted smoothly across all euro area countries. The singleness of the Governing Council's monetary policy is a precondition for the ECB to be able to deliver on its price stability mandate.
At the moment the ECB is dealing with a record-high inflation rate of 8.6%. There are also Italian political problems and the Russian invasion of Ukraine. Italian leader former ECB president Mario Draghi left his political post this morning. This has plunged the Italian political future into doubt. JP Morgan noted "Draghi's loss is a major one for Italy, also reputationally and in ways that hard to quantify. His absence will also be felt in the foreign policy space, making Italy and Europe as a whole more vulnerable to Russian pressure"
In an initial reaction, the gold price pushed higher as EUR/USD spiked. The market had been more priced for a 25bps hike so 50bps could have taken some traders and analysts by surprise. EURUSD is now 0.78% higher on the session while gold is recovering from being at its lows. The next resistance in the yellow metal will be back at the $1700/oz psychological number.
(30-min spot gold chart)
