Was the ECB's June rate hike a "start" or an "end"? The minutes offered some clues.
2026-05-29 08:42:51
The minutes of the European Central Bank’s April meeting, released on Thursday (May 28), confirmed its hawkish stance, which has been further strengthened since the meeting.
The European Central Bank (ECB) minutes revealed that some ECB members "would not oppose raising interest rates at the current meeting if the option were on the table." Despite downside risks to the growth outlook, short-term inflation expectations have risen significantly. The minutes also discussed in detail the indirect and second-round effects of the energy shock—the transmission time of oil price shocks to different energy-sensitive items ranged from one month for fuels to more than 15 months for items such as meat products.
Looking ahead to the June meeting, a rate hike is almost a certainty, with the market widely expecting a 25 basis point "insurance rate hike," which is more of a symbolic move aimed at demonstrating the ECB's determination to anchor inflation expectations.
From a market perspective, the euro fell slightly against the dollar on Thursday due to the escalating conflict between the US and Iran, but traded above 1.1650 during the Asian session on Friday. The hawkish signals from the meeting minutes provided some support for the euro, but the market is still weighing the geopolitical risks against expectations of a European Central Bank rate hike.
The recently released minutes of the European Central Bank's April meeting confirmed its hawkish stance, which has been further strengthened since the meeting. It's worth recalling that at the press conference following the April meeting, President Lagarde mentioned that the central bank discussed not only maintaining interest rates but also a possible rate hike. This hawkish tone is reflected in the minutes, showing that some members "would not oppose raising rates at the current meeting if the option of a rate hike were on the table." Several members pointed out that this decision was a "difficult choice," and raising rates at the current meeting would send a stronger signal that the central bank is determined to bring inflation back to its target level in a timely manner.
The minutes also showed that while risks to the growth outlook were tilted to the downside and had intensified since March, short-term inflation expectations had risen significantly. However, most indicators of long-term inflation expectations remained around 2%, supporting the stabilization of inflation around the target in the medium term. The minutes also cautioned against interpreting the survey data on inflation expectations with caution, as any deterioration could be driven by sentiment rather than substantial changes in fundamentals.
Regarding the transmission mechanism of energy shocks, the minutes provide a detailed analysis: some indirect effects are unavoidable, and the key issues lie in their scope, magnitude, timing, and duration. In terms of peak impact, the time it takes for oil price shocks to transmit to energy-sensitive items varies greatly—fuels take only one month, while other items such as meat products take more than 15 months. The minutes also emphasize that the current classic negative supply shock situation differs from that of 2022—when the post-pandemic reopening also brought strong demand forces that pushed up inflation.
With two weeks to go before the next ECB meeting, a rate hike seems almost inevitable. A 25-basis-point "insurance hike" would be less damaging to the economy than the ECB's credibility would be affected by its lagging yield curve. Schnabel's comments earlier this week confirmed this direction. In fact, unless economic sentiment deteriorates sharply again, the ECB is likely to raise rates. Even if the US-Iran conflict ends tomorrow, the damage to inflation has already been done—inflation has begun and will continue to impact the Eurozone economy.
The only question is whether this shock will be categorized as "temporary" or whether supply chain disruptions will have a greater ripple effect than simply "affecting transportation and food prices." Given the experience of 2022, the ECB is more likely to opt for an "insurance" rate hike—not because of its impact on inflation expectations, but because it will be a symbolic move emphasizing the central bank's determination to act.
What's even more interesting is what will happen after the June meeting. As long as fiscal stimulus remains moderate, the risk of a full-blown inflation spiral remains small, making an aggressive monetary policy response to the current energy price shock unlikely. This is why we've only seen one insurance rate hike in June so far—to demonstrate the ECB's willingness and determination to anchor inflation expectations at its target level.
As long as the bond market takes over part of the ECB's monetary tightening efforts, governments refrain from fueling the inflation spiral through fiscal stimulus, and sentiment indicators remain weak, it's hard to imagine the ECB being willing to aggressively combat external supply shocks at the cost of exacerbating downside risks to the economy. Therefore, the market currently only anticipates a rate hike in June, with the subsequent path depending on data developments.
The ECB's April meeting minutes confirmed a hawkish stance, with some members supporting a rate hike and a detailed discussion of the differentiated transmission mechanism of energy shocks from fuel (1 month) to meat products (15 months and above). A June rate hike is almost a certainty, with the market widely expecting a 25 basis point "insurance rate hike," which is more of a symbolic move. However, the minutes suggest that as long as the bond market bears the burden of tightening, fiscal stimulus is moderate, and economic sentiment remains weak, the ECB is unlikely to aggressively combat supply shocks. Therefore, the market currently only anticipates one rate hike, and the subsequent path will depend on data developments.
Does the technical aspect of the euro against the dollar also confirm this judgment?
From the daily chart, the EUR/USD pair is showing a generally weak and volatile trend, with short-term bullish and bearish momentum balanced and the direction unclear. Currently, the price is around 1.1650, having broken below the 20-day and 50-day moving averages. Short-term moving averages are turning downwards, forming resistance, and the medium-term uptrend is weakening. Key support lies near the previous low of 1.1575. The RSI is at 48.17, near the 50 neutral line, indicating neutral market momentum and a stalemate between bulls and bears. The MACD indicator shows the DIFF line slightly below the DEA line, indicating weak bearish momentum and no clear directional trend yet. Overall, the exchange rate is in a consolidation phase after a pullback, with a short-term bearish bias but weak momentum. A break below 1.1575 would open up further downside potential, while a recovery above the 20-day moving average could alleviate the decline.
(Euro/USD daily chart, source: FX678)
At 8:26 Beijing time, the euro was trading at 1.1653/54 against the US dollar.
The European Central Bank (ECB) minutes revealed that some ECB members "would not oppose raising interest rates at the current meeting if the option were on the table." Despite downside risks to the growth outlook, short-term inflation expectations have risen significantly. The minutes also discussed in detail the indirect and second-round effects of the energy shock—the transmission time of oil price shocks to different energy-sensitive items ranged from one month for fuels to more than 15 months for items such as meat products.
Looking ahead to the June meeting, a rate hike is almost a certainty, with the market widely expecting a 25 basis point "insurance rate hike," which is more of a symbolic move aimed at demonstrating the ECB's determination to anchor inflation expectations.
From a market perspective, the euro fell slightly against the dollar on Thursday due to the escalating conflict between the US and Iran, but traded above 1.1650 during the Asian session on Friday. The hawkish signals from the meeting minutes provided some support for the euro, but the market is still weighing the geopolitical risks against expectations of a European Central Bank rate hike.
The minutes confirmed a hawkish bias, with some members supporting a June rate hike.
The recently released minutes of the European Central Bank's April meeting confirmed its hawkish stance, which has been further strengthened since the meeting. It's worth recalling that at the press conference following the April meeting, President Lagarde mentioned that the central bank discussed not only maintaining interest rates but also a possible rate hike. This hawkish tone is reflected in the minutes, showing that some members "would not oppose raising rates at the current meeting if the option of a rate hike were on the table." Several members pointed out that this decision was a "difficult choice," and raising rates at the current meeting would send a stronger signal that the central bank is determined to bring inflation back to its target level in a timely manner.
The minutes also showed that while risks to the growth outlook were tilted to the downside and had intensified since March, short-term inflation expectations had risen significantly. However, most indicators of long-term inflation expectations remained around 2%, supporting the stabilization of inflation around the target in the medium term. The minutes also cautioned against interpreting the survey data on inflation expectations with caution, as any deterioration could be driven by sentiment rather than substantial changes in fundamentals.
Regarding the transmission mechanism of energy shocks, the minutes provide a detailed analysis: some indirect effects are unavoidable, and the key issues lie in their scope, magnitude, timing, and duration. In terms of peak impact, the time it takes for oil price shocks to transmit to energy-sensitive items varies greatly—fuels take only one month, while other items such as meat products take more than 15 months. The minutes also emphasize that the current classic negative supply shock situation differs from that of 2022—when the post-pandemic reopening also brought strong demand forces that pushed up inflation.
A "safety-based interest rate hike" in June is almost a foregone conclusion.
With two weeks to go before the next ECB meeting, a rate hike seems almost inevitable. A 25-basis-point "insurance hike" would be less damaging to the economy than the ECB's credibility would be affected by its lagging yield curve. Schnabel's comments earlier this week confirmed this direction. In fact, unless economic sentiment deteriorates sharply again, the ECB is likely to raise rates. Even if the US-Iran conflict ends tomorrow, the damage to inflation has already been done—inflation has begun and will continue to impact the Eurozone economy.
The only question is whether this shock will be categorized as "temporary" or whether supply chain disruptions will have a greater ripple effect than simply "affecting transportation and food prices." Given the experience of 2022, the ECB is more likely to opt for an "insurance" rate hike—not because of its impact on inflation expectations, but because it will be a symbolic move emphasizing the central bank's determination to act.
Why is only one interest rate hike expected at present?
What's even more interesting is what will happen after the June meeting. As long as fiscal stimulus remains moderate, the risk of a full-blown inflation spiral remains small, making an aggressive monetary policy response to the current energy price shock unlikely. This is why we've only seen one insurance rate hike in June so far—to demonstrate the ECB's willingness and determination to anchor inflation expectations at its target level.
As long as the bond market takes over part of the ECB's monetary tightening efforts, governments refrain from fueling the inflation spiral through fiscal stimulus, and sentiment indicators remain weak, it's hard to imagine the ECB being willing to aggressively combat external supply shocks at the cost of exacerbating downside risks to the economy. Therefore, the market currently only anticipates a rate hike in June, with the subsequent path depending on data developments.
The ECB's April meeting minutes confirmed a hawkish stance, with some members supporting a rate hike and a detailed discussion of the differentiated transmission mechanism of energy shocks from fuel (1 month) to meat products (15 months and above). A June rate hike is almost a certainty, with the market widely expecting a 25 basis point "insurance rate hike," which is more of a symbolic move. However, the minutes suggest that as long as the bond market bears the burden of tightening, fiscal stimulus is moderate, and economic sentiment remains weak, the ECB is unlikely to aggressively combat supply shocks. Therefore, the market currently only anticipates one rate hike, and the subsequent path will depend on data developments.
Does the technical aspect of the euro against the dollar also confirm this judgment?
From the daily chart, the EUR/USD pair is showing a generally weak and volatile trend, with short-term bullish and bearish momentum balanced and the direction unclear. Currently, the price is around 1.1650, having broken below the 20-day and 50-day moving averages. Short-term moving averages are turning downwards, forming resistance, and the medium-term uptrend is weakening. Key support lies near the previous low of 1.1575. The RSI is at 48.17, near the 50 neutral line, indicating neutral market momentum and a stalemate between bulls and bears. The MACD indicator shows the DIFF line slightly below the DEA line, indicating weak bearish momentum and no clear directional trend yet. Overall, the exchange rate is in a consolidation phase after a pullback, with a short-term bearish bias but weak momentum. A break below 1.1575 would open up further downside potential, while a recovery above the 20-day moving average could alleviate the decline.
(Euro/USD daily chart, source: FX678)
At 8:26 Beijing time, the euro was trading at 1.1653/54 against the US dollar.
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