By Yasin Ebrahim

Investing.com — While it is not likely that the European Central Bank will surprise the market with a new policy, the decision to announce its monetary policy on Thursday could be a wake-up call for the bank. However, the central bank must remain bold about rate increases or the risk of the euro continuing its slide.

The price of $1.0715 rose by 0.14%

“Any message that does not signal an openness to a 50bp hike would likely fall short of the market’s hawkish expectations and push EUR/USD closer to 1.0500,” ING said in a note.

After data showing record inflation in May, there has been a lot of talk about a possible 50-basis point rate rise.

The need to raise rates aggressively has been emphasized by ECB members who are more vocal than ever. 

Robert Holzmann, the Austrian central bank governor, said a 50 basis point rate hike was needed to send a “clear signal that the ECB is serious about fighting inflation”.

But if ECB President Christine Lagarde sticks to her previous stance for 25 basis points rake hikes in July and September that will likely push the central bank further behind the curve on tackling inflation and prompt bets for steeper rate hikes later this year and in 2023.

The markets are betting on a total 130 basis points in tightening over the year, which would “implement a 50bp increase at one of four meetings – following the June one,” ING said.

Some, however, believe that the ECB’s hands a tied on stepping up the pace of tightening as dovish members of the governing council remain wary of a sharp shift in policy amid expectations for inflation to cool.   

Daiwa Capital Markets recently stated that while the Governing Board will most likely argue against policy disruptions and updated projections suggest that inflation will return to target in the medium-term, the hawks pushing for a June 50bps hike are unlikely to succeed, even if Lagarde does open the door to this possibility.