After months of talking up a 25 bps rate hike coming into today, it would be quite careless for the ECB to choose to raise interest rates by 50 bps instead. Market pricing is just about even on both fronts and therein lies the risk for the euro, depending on what the central bank decides. In the big picture though, whether 25 bps or 50 bps now makes little difference as the ECB only sees themselves ahead of the BOJ - which stood pat again today - in terms of actually taking policy action.
While all eyes are on the ECB, there are other risks for the euro to consider as well in the day ahead. For one, Italian prime minister Draghi looks set to resign despite winning a vote of confidence yesterday. But the vote saw key parties abstain and that points to the potential for early elections in Italy.
The other key issue to watch will be the restart of the Nord stream pipeline. An energy crisis is looming over Europe and that won't add to comfort to soaring inflation and the recent record-breaking heatwave across the region.
European countries have been asked to reduce gas consumption by 15% from August to March next year and there is a lot of apprehension and uncertainty surrounding the outlook and impact as Russia seeks to cut off supplies.
For some context, more than 1/3 of Russian gas shipments to Europe flow through the Nord stream pipeline - which has been shut down since 11 July for "yearly maintenance". The deliveries are expected to resume today and all eyes will be on how much flow is returning. Gazprom warned yesterday though that the pipeline may not operate to full capacity as even if a component of the pipeline is delivered against sanctions, a second part will have to be "serviced" on 26 July.
Call it what you will but this makes for great leverage for Russia in seeking concessions to the recent sanctions.
