FX.co ★ ECB considers further key rate hike

While the euro and the pound sterling are trying to recover from yesterday's Federal Reserve minutes, it became clear that the committee has not had its last say on combating inflation. Martins Kazaks, a member of the Governing Council of the European Central Bank, stated in an interview that an additional interest rate hike by the European Central Bank (ECB) was still likely at the following meeting.

"Kazaks said that while inflation is slowing across the eurozone, he must see the ECB's new quarterly projections and inflation data for August before settling on a course of action. "On interest rates, the big rise is behind us. If we look at the coming months, if there'll be increases in interest rates, then they'll be really very small," the European policymaker said.

These remarks from one of the leading ECB hawks came after yesterday's minutes of the US Federal Reserve. Committee members also expressed uncertainty about future monetary policy, leaving the door open for another tightening. Now, before the September interest rate meetings, both the Federal Reserve and the ECB need a more thorough economic analysis before deciding on the continuation of their unprecedented rate hike campaigns.

Several economists predict a deposit rate increase of a quarter point to 4% despite decreasing inflationary pressures in the eurozone and worsening regional economic outlooks. Recent data revealed that while the eurozone avoided a recession in the first half of the year, its largest member, Germany, experienced stagnation after a winter decline.

The July FOMC minutes highlight the tension between faster-than-expected falling inflation and economic growth, which exceeded the central bank's forecast. Notably, in July, the rate was raised to the range of 5.25–5.5%. This followed a strict policy after officials kept rates unchanged at the meeting in June.

The emphasis by several policymakers on the need to analyze fresh August data is making buyers of risk assets proceed with caution. Considering that the euro performed rather poorly in August, following a decline that began in mid-July, such uncertainty continues to weigh on the EUR/USD pair.

Regarding today's technical picture for EUR/USD, the pressure on the euro remains the same. To regain control, buyers should keep the price above 1.0890. This would pave the way to 1.0920 and allow the pair to test 1.0950. From there, the price may climb to 1.0980. However, it would be quite difficult without support from major traders. If the pair drops, I expect significant actions from major buyers only around 1.0860. If they fail to be active, it would be wise to wait for a low of 1.0840 or consider long positions from 1.0810.

The situation with the British pound is much clearer. Recent inflation data pointed to the need for continued strong measures against price pressures caused by raising interest rates. The Bank of England is likely to announce this at its September meeting this year. This maintains an interest in the British pound, making it more appealing with each decline.

Thus, the pound sterling continues trading within the channel. The pound sterling will rise only after bulls gain control over the 1.2725 level. Regaining this range will boost hopes for recovery to 1.2760 and 1.2210, after which we can talk about a surge to around 1.2840. If the pair falls, bears will attempt to take control of 1.2690. If they succeed, a breakout of this range will hurt bulls' positions and push GBP/USD to a low of 1.2660, with the potential to drop further to 1.2620.