ECB announces rate hike in July, Bitcoin defends $30,000

On Thursday, CNN reported that the European Central Bank confirmed plans to raise interest rates next month to fight inflation. The central bank announced that it would raise its key interest rate by 25 basis points in July - the first rate hike in more than a decade - and said that if the medium-term inflation outlook persists or worsens, there may be a larger rate hike in September.

“Inflation is very high and is expected to remain above our aim for some time,” ECB President Christine Lagarde told a news conference.

The ECB raised its annual inflation forecast for the euro zone “substantially” to 6.8% this year and said it would remain just above its 2% target in 2024. It also cut its growth forecasts. GDP in the 19-nation euro zone is now expected to rise 2.8% in 2022 and just 2.1% next year.

According to Eurostat, inflation in the eurozone hit a record high of 8.1% last month.

The war in Ukraine has fueled global inflation and put pressure on the European Union to find alternatives to Russian oil and gas, on which it is heavily dependent. Europe has agreed to gradually reduce exports - imposing a phased embargo on oil and coal - and is now scrambling to find alternative energy supplies as fossil fuel prices soar.

Lagarde said energy prices are nearly 40% higher than in May 2021 and will remain high in the short term.

"If the war escalates, economic sentiment could deteriorate, supply-side constraints could increase, and energy and food prices could remain persistently higher than expected," she said.

The ECB has been slower to act on inflation than Britain and the United States, both of which have raised interest rates in recent months. But the ECB’s task is trickier because Europe is more directly affected by the economic impact of the war in Ukraine.

The central bank is trying to strike a delicate balance between raising interest rates to curb price increases, but not so much that it pushes the region into recession.

Bill Papadakis, macro strategist at Lombard Odier Bank, told CNN the ECB's decision to raise interest rates and end its bond-buying program from July 1 was "the right move." But he said the prospect of a bigger rate hike in September might be a mistake.

"Higher energy prices erode consumers' real incomes and weaken economic growth, which could suffer if the ECB continues to implement aggressive monetary tightening," he said.

Lagarde said high levels of employment and the reopening of industries that were closed during the pandemic were among the factors supporting consumption. "In the medium term, the conditions are in place for continued growth and a further recovery," she said.

Bitcoin remained stable on Thursday as the European Central Bank announced its first rate hike in more than a decade. According to BitPush Terminal data, the price of Bitcoin was $30,145 as of press time. The price of Bitcoin this year has traded around expectations of central bank tightening monetary policy, as the liquidity-absorbing action seems to have also affected cryptocurrencies.

For much of this year, the Federal Reserve’s actions have attracted most of the attention. Now that the European Central Bank is also taking action to curb surging inflation, cryptocurrency traders are watching.

“The globalization of markets means this will affect all economies, so stocks and cryptocurrencies are likely to be affected in the short term,” Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock, wrote in an email Thursday.

For now, cryptocurrency bulls appear to have defended the key price threshold of $30,000. But some cryptocurrency analysts warn that a deeper sell-off is still possible.

“We continue to believe that the bear market for Bitcoin and the entire cryptocurrency market is not over yet,” said Alex Kuptsikevich, senior market analyst at FxPro.