ECB or Raise Interest Rates in July, the Euro's Decline is Difficult to Change

ECB President Christine Lagarde sent a signal on the 11th that interest rates will be raised in July. As it lags behind the fed's tightening rhythm and the European economy faces the risk of stagflation, market participants generally expect the euro to fall for a while.

      According to the Financial Times reported on the 11th, ECB President Lagarde said that interest rates may be raised within a few weeks after stopping asset purchases, and she expects to stop asset purchases at the beginning of the third quarter. The ECB's Governing Council will make a decision on interest rates on July 21. Market participants believe that the ECB's first interest rate hike in more than 10 years is almost a foregone conclusion.

      The ECB is far behind other central banks in raising rates, with its key interest rates still in negative territory. Motil, chief investment officer at Amundi, one of Europe's largest fund managers, told the Financial Times that the ECB would be able to raise interest rates twice to bring the benchmark rate up to zero.

The euro fell to a five-year low against the dollar, investors bet that the ECB would struggle to keep pace with currency tightening across the Atlantic, and the Russian-Ukrainian conflict cast a shadow over the eurozone's economic recovery.

      Economists tracked by Bloomberg cut their 2022 euro zone economic growth forecasts to 2.8 percent from 4.2 percent at the start of the year. However, the risk of a recession is rising after Russia stopped sending gas to Poland and Bulgaria. In addition to this, businesses and consumers in Europe are under pressure as prices rise.

      Since the Russian-Ukrainian conflict, the rise in energy prices in European countries has been particularly pronounced, which has had a significant impact on the inflation rate. In addition, in the context of the COVID-19 pandemic, other commodities such as energy products and food are becoming more and more expensive due to supply chain disruptions, among other reasons. According to the latest statistics released by the German Federal Statistical Office on the 11th, the German inflation rate rose to 7.4% in April. Preliminary statistics previously released by Eurostat show that the euro area inflation rate reached 7.5% per annum in April this year, a record high for six consecutive months, due to the sharp rise in energy and food prices.

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