EUR/GBP is currently hovering around the 0.8760 mark, as the European Central Bank (ECB) portrayed a blurred picture around the future rate hike path. The market participant was assuming that the ECB would not hike by 50 basis points (bps) after the recent turbulence in the banking sector globally.
Following the US Silicon Valley Bank (SVB) fallout, the market has witnessed many small to large banks falling into liquidity traps emerging from higher borrowing costs across the world. Credit Suisse was the first European bank to face a liquidity crunch this week, although the Swiss National Bank (SNB) intervened with some rescue plans.
Therefore, the expectation prior to the ECB rate decision on Thursday was low for a 50 bps hike. Despite that, the ECB raised the rate by 50 bps. Later on, some backdoor sources suggest that the driving force behind the 50 bps rate was after SNB threw a lifeline to Credit Suisse. Adding to this, the ECB feared ditching a 50 basis point hike would panic investors. Even though some policymakers discussed no change in the rate hike, there was no discussion on a 25 bps hike.
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