(News Bulletin 247) – The euro zone currency rose sharply against the greenback during the afternoon.

The European Central Bank has hardly adopted a dovish tone, which propels the euro. The European currency lost ground against the dollar before the decisions announced by the European Central Bank (ECB). The euro then turned higher, gaining 0.45% against the dollar to 1.0883 dollar around 3:30 p.m.

The ECB has, as expected by the market, raised all of its three key rates by 25 basis points or 0.25%. What was perhaps less anticipated by investors is the first sentence of the press release from the European institution: “Inflation is slowing down, but should remain too high for too long a period”, judged the central bank.

Another rate hike expected in July

The tone of its president Christine Lagarde, during her conference, turned out to be much the same. “We have not arrived at the right port,” she said, and “we still have a long way to go” to bring inflation back to 2% within an acceptable horizon, argued the central banker.

Unless there is a “significant” change in its central scenario, the ECB plans “to increase its rates in July”, also indicated Christine Lagarde, estimating “that this probably does not come as a surprise to you [les journalistes, NDLR]”.

“Traders are worried about one thing: that the central bank will raise interest rates in the midst of a recession,” warns Naeem Aslam of Zaye Capital. “But inflation remains high, which means that the bank still has its work cut out for it. This is where the ECB is currently focusing. The central bank certainly cannot afford to be too accommodative, because inflation in his projections is still high for the coming years compared to his previous projections.

On the equity markets, the CAC 40 continued its decline, losing 0.9%, a little more than before the ECB’s announcements and the speech of its president.