Economists are starting to anticipate an interest rate hike from the ECB

[Ben Graham]

Meanwhile, the European currency is rising, and more economists are predicting that the next move in the eurozone will indeed be an interest rate increase by the European Central Bank. This aligns with the views of influential board member Isabel Schnabel.

According to a survey, over 60% of respondents believe that officials are more likely to raise borrowing costs rather than lower them. However, they do not expect this to happen anytime soon; it is projected that the deposit rate will remain at 2% for the next two years.

On the one hand, rising rates may help contain inflation—which the ECB currently seems to have under control—but on the other hand, they pose risks of slowing economic growth and even triggering recessions in highly indebted countries. Clearly, the ECB will be forced to continue balancing between these two goals, trying not to harm the already fragile eurozone economy.

The impact of rate hikes on the euro exchange rate also remains uncertain. On one hand, higher rates make the euro more attractive to investors, which could lead to its strengthening. On the other hand, concerns about economic growth may reduce interest in the European currency.

I should note that in a recent interview, Schnabel cited inflation persistence as one of the reasons she is confident that interest rates will be raised in the near future. One indicator now points to the first hike in the second half of 2027.

However, most members of the Governing Council believe that interest rates are currently in a good place. At next week's meeting, ECB President Christine Lagarde's task will be to convince investors that the economic danger is diminishing—without encouraging expectations of an imminent rate hike.

Survey participants believe that the new quarterly ECB forecasts, to be published next week, will present a more optimistic picture of growth, something Lagarde hinted at recently. As for inflation, concerns persist regarding 2027, when delays in implementing the EU's new carbon-pricing system may have a negative impact. However, most economists expect that the September forecast—predicting a 1.9% rise in prices this year—will remain unchanged.

Regarding the current EUR/USD technical outlook, buyers now need to think about reclaiming the 1.1750 level. Only then will a test of 1.1780 become possible. From there, the pair could climb to 1.1820, though doing so without support from major players will be quite difficult. The furthest target is the 1.1855 high. In the event of a decline, I expect significant buying interest only around 1.1715. If no one steps in there, it would be wise to wait for a retest of the 1.1685 low or consider opening long positions from 1.1650.

As for the current GBP/USD technical picture, pound buyers need to reclaim the nearest resistance at 1.3390. Only then will a move toward 1.3430 become feasible, though breaking above that level will be quite difficult. The furthest target is the 1.3470 level. If the pair falls, the bears will attempt to regain control at 1.3350. If they manage to do so, a break of this range will deal a serious blow to the bulls and push GBP/USD down to the 1.3320 low, with the prospect of reaching 1.3285.

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