ECB Inflation Outlook Takes Centre Stage Ahead of Rate Decision
The upcoming European Central Bank (ECB) meeting will be crucial for the euro's near-term performance, particularly in light of rising energy costs. The ECB is expected to raise its deposit facility rate by 25 basis points to 2.5% on Thursday, but the decision itself may not be the main event.
The key issue will be the ECB's inflation projections and guidance. Traders are looking for signs that the latest rise in inflation is seen as largely an energy-driven shock or whether it is becoming more concerned about second-round effects that could justify further tightening later this year.
Recent inflation data showed headline CPI accelerating due to surging energy prices, but core and services inflation eased. The ECB has some wriggle room to argue that underlying inflation has not accelerated, although policymakers will be mindful of rising energy costs.