- Euro exchange rates seen broadly higher on Thursday, July 5

- Markets bring forward pricing of ECB interest rate rise

- Moves described as "senseless" by one analyst

The ECB, image © European Central Bank, reproduced under CC licensing

The Euro pared back mid-week losses against the Dollar and British Pound late in the mid-week session on news that some European Central Bank policy makers are uneasy about expectations that the policy interest rate will not increase until December 2019.

ECB policy makers are uneasy that investors are betting on a rate hike as late as December 2019, with a move in September or October next year now a live possibility thanks to the report on the matter from Bloomberg.

The report did not cite names, confirming the Euro is alive to the rumour mill.

Market pricing shifted in response to the report: a 10bp hike in the deposit rate is 80% priced in for September 2019, compared with 70% prior.

The Euro exchange rate complex underwent some interesting moves with the EUR/GBP exchange rate moving sharply higher from lows at 0.8815 to current levels at 0.8835 on the news.

The Pound-to-Euro exchange rate therefore fell from highs of 1.1344 down to current levels around 1.1320.

The EUR/USD spiked higher from around 1.1650 to record a breach of 1.17.

Antje Praefcke, an analyst with Commerzbank says the "hectic and rather senseless moves" come as "the result of unconfirmed reports that some ECB members considered the market’s rate hike expectations for late December 2019 to be too weak."

Praefcke expects a subsequent line up of official ECB speakers - Mersch, Nowotny, Nouy and Weidmann are all on tap today - will be unable to offer anything more other than than "the usual empty phrases on monetary policy - depending on whether they are hawks or doves."

"Seriously, what kind of a crystal ball do you need to have to warrant such precise fine-tuning of distant rate expectations?" adds Kit Juckes, an analyst with Société Générale in London, displaying an healthy dose of scepticism towards the market's pricing of future interest rate events. "If the ECB stories tell us anything, perhaps it is that as European data improve (PMI, factory orders), policy-makers may feel they have talked down rate expectations and the currency enough."

The European Central Bank is looking to wind down its programme of buying bonds over coming months which will be a prelude to interest rates in 2019.

It is the date at which this interest rate rise is expected by markets that matters for the value of the Euro - bring it forward and the Euro responds by going higher, push it back and the Euro responds by going lower.

"Forward guidance is likely to become increasingly important, and the report overnight contrasts recent dovish rhetoric. Ultimately, the data flow will determine when the ECB eventually lifts rates and the end of 2019 is some time away. We suspect that the ECB will want to keep its options open and that more dovish comments may follow," says a note from ANZ Research over the matter.

Meanwhile, the outlook for the Euro has improved somewhat of late with the second reading of the June composite Eurozone PMI confirming a rise to 54.9, ending a run of four consecutive monthly declines from a high of 58.8 in January.

Underlying the increase, new orders and employment indices both rose, but expectations of future activity continued to slide with the future output index at 63.4, compared with a high of 68.0 in January.

"Going forward, the key focus for euro area activity is the trade climate and how that will evolve in coming months. US President Trump has invited EU Commission President Juncker to Washington for trade talks, but no date has been set yet," says a note from ANZ Research.

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