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ECB Governors Lean Toward July Pause After June Hike, Sources Say
ECB sources say a July hold is the base case if energy prices stay flat. The pause would cap euro upside and widen the dollar's rate advantage against a still-hiking Fed.
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European Central Bank policymakers see keeping interest rates on hold at their next meeting in July as the more likely scenario, if energy prices stay near their current level, two sources told Reuters.
The June hike was the ECB's first in over a decade, a response to the energy-price surge triggered by the Iran conflict. The governing council is already debating whether to follow it with a pause, the sources said. The dovish lean reflects a view that the initial shock is fading. Further tightening risks choking off growth before the transmission mechanism has fully worked through.
The July decision will hinge on the August energy-price data, the sources said. If crude and natural gas hold at current levels, the case for a pause strengthens. A fresh spike – from supply disruptions or a wider Middle East escalation – would push the council toward another hike.
The debate inside the ECB mirrors a broader shift across developed-market central banks. The Federal Reserve, the Bank of England, and the Bank of Japan have all tightened this year. The pace of hikes is slowing as policymakers weigh lagged effects against persistent inflation. The ECB's pause would mark the first major central bank to step back from consecutive tightening.
For the euro, a July pause would remove a near-term catalyst for further gains. The single currency rallied into the June hike on expectations of a sustained tightening cycle. A hold would force the market to reprice the rate path lower, potentially capping EUR/USD below the 1.10 level. The dollar, meanwhile, would benefit from the relative rate differential, especially if the Fed delivers another hike in July.
The sources spoke on condition of anonymity because the deliberations are private. The ECB declined to comment.
The next scheduled ECB meeting is July 27. The August energy-price data will be released in early September, after the meeting. The council will have to decide based on forward indicators and futures curves rather than hard prints.