The European Central Bank is expected to hold its deposit rate at 2.25% at its July 23 monetary policy meeting, while market focus shifts to whether officials will signal additional rate hikes in September following a 15.5% surge in WTI crude oil prices last week. The oil price jump, the largest weekly gain since the first week of the Iran war outbreak, stems from escalating U.S.-Iran military confrontations that included two U.S. military casualties over the weekend. European overnight index swap markets are pricing approximately 45 basis points of rate increases by year-end, with September and December meetings viewed as likely timing for tightening moves.
ECB Holds Deposit Rate at 2.25% on July 23
The European Central Bank will convene its regular monetary policy meeting on July 23, with the deposit rate widely expected to remain at 2.25%. Market attention centers on whether the ECB will signal a rate increase at its September meeting, following a similar move last month. The eurozone OIS market is reflecting just over 45 basis points of rate hikes by year-end, suggesting two increases are priced in, with September and December identified as the likely timing. This pricing expanded rapidly from below 20 basis points earlier this month as oil prices rebounded sharply after the previous memorandum of understanding became void.
WTI Crude Surges 15.5% Amid Middle East Tensions
West Texas Intermediate crude oil posted a 15.5% gain last week, marking the largest weekly increase since the first week of the Iran war outbreak, which saw a 35.6% jump. U.S.-Iran military confrontations intensified over the weekend, resulting in two U.S. military fatalities. The dollar-yen exchange rate exceeded 162 yen, maintaining vigilance around potential intervention by Japanese foreign exchange authorities, though the effectiveness of such intervention could be diminished during periods of surging oil prices.
Dollar Index Declines 0.21% Following U.S. Inflation Data
The dollar index closed at 100.755 on July 17, down 0.212 points or 0.21% from the previous week, according to Yonhap Infomax's dollar index and cross-currency comparison. The index faced downward pressure from U.S. inflation indicators showing consumer and producer prices for last month came in significantly below expectations, sparking relief that the Federal Reserve would not raise rates immediately this month. However, declines were limited by escalating U.S.-Iran tensions. The dollar index has not fallen below the 100 level over the past month.
The dollar-yen rate reached 162.394 yen, up 0.41% week-on-week, marking the second consecutive weekly gain. The rate fluctuated around 162 yen amid upward pressure from surging oil prices and caution over potential Japanese foreign exchange authority intervention. The euro strengthened against the dollar after a one-week pause, with the euro-dollar rate at 1.14405, up 0.22% week-on-week. The euro-yen rate climbed to 185.77 yen, up 0.62%, reaching its highest weekly close since the last week of April. The pound-dollar rate stood at 1.34525, up 0.39%, while the offshore dollar-yuan rate fell 0.06% to 6.7778 yuan.
New Zealand Q2 CPI Release on July 21
New Zealand's Reserve Bank faces heightened tightening expectations ahead of the second-quarter consumer price index release on July 21, with CPI forecast to surge 1.4% quarter-on-quarter. The RBNZ initiated its rate-hiking cycle at its July monetary policy meeting. New Zealand's OIS market is pricing in rate increases of just over 50 basis points by year-end. An additional rate hike is anticipated at the September meeting, with the upcoming CPI data potentially strengthening tightening bets further.
Indonesia Central Bank Meeting on July 22
Bank Indonesia is expected to raise its policy rate by 25 basis points to 6.0% at its July 22 monetary policy meeting. The central bank increased rates by a combined 100 basis points over May and June in response to surging oil prices and currency depreciation, with 25 basis points of that increase coming from an emergency meeting. The recent peak for BI's policy rate was 6.25%, recorded during the previous tightening cycle.
The UK's Labour Party leader Andy Burnham is scheduled to officially take office as Prime Minister on July 20. Markets may react sensitively to his early-term actions given his preference for expanded fiscal spending, which has raised concerns in bond markets.
FAQ
What is the ECB expected to decide at its July 23 meeting?
The European Central Bank is expected to hold its deposit rate at 2.25% at the July 23 monetary policy meeting. Market focus is on whether the ECB will signal additional rate hikes in September, with eurozone OIS markets pricing approximately 45 basis points of increases by year-end.
How did oil prices affect central bank policy expectations last week?
WTI crude oil surged 15.5% last week, the largest weekly gain since the first week of the Iran war outbreak. This oil price jump, driven by escalating U.S.-Iran military confrontations, caused eurozone rate hike pricing to expand rapidly from below 20 basis points earlier this month to over 45 basis points by year-end.
What rate decision is expected from Indonesia's central bank on July 22?
Bank Indonesia is expected to raise its policy rate by 25 basis points to 6.0% at its July 22 meeting. The central bank already increased rates by 100 basis points over May and June in response to oil price surges and currency weakness, with the previous tightening cycle peak reaching 6.25%.
