ECB Governing Council member Pierre Wunsch said on October 14 that at the next meeting the regulator will most likely raise the interest rate. For the currency market, this is an important signal, since rate expectations directly affect the value of the euro. At the same time, Wunsch's words so far remain the opinion of one of the council members, and not a ready-made ECB decision.
Who decides on the rate
Monetary policy at the ECB is determined by the Governing Council. It includes the heads of the national central banks of the eurozone countries and the members of the executive board. Therefore, a statement by one representative does not guarantee a change in the rate. But such comments allow the market to assess the mood within the regulator before the meeting.
Why the statement matters for the euro
The interest rate determines the yield on assets denominated in euros. If the market begins to expect an increase in it, the European currency may receive support. The most sensitive to such changes remain the pairs EUR/USD, EUR/GBP and EUR/JPY. Moreover, repricing usually begins in advance, even before the official decision.
Why the word "raise" is especially important
In recent years, the market has become accustomed to discussing above all the easing of ECB policy. Therefore, the shift from expectations of rate cuts to a possible increase noticeably changes the picture. Instead of the question of further easing, participants are beginning to assess how far the regulator is prepared to go toward tightening.
What could confirm this scenario
New data on inflation in the eurozone will be of key importance. If price pressure remains high, the probability of a rate increase may rise. If inflation begins to slow quickly, it will be easier for other members of the Governing Council to advocate keeping the rate unchanged.
Why the market follows every speech
Between meetings, traders have no new ECB decision, so attention switches to public comments by representatives of the regulator. If several council members begin to speak in the same direction, the market may readjust expectations in advance. If opinions diverge, the volatility of euro pairs usually increases.
What's next
Now it is important to monitor whether other ECB representatives support Wunsch's position. Fresh data on inflation and business activity in the eurozone will serve as an additional guide. If the hawkish rhetoric intensifies, the euro may receive additional support even before the next meeting.
Are you holding euro pairs before the meeting?
Statements by ECB members can quickly move EUR/USD and other pairs even before the official decision. For a prop trader, the rules for trading around central bank speeches and macroeconomic events are especially important here. Different prop firms have different restrictions on trading during news, leverage limits, and daily drawdown calculation. These parameters are best checked in advance.