Even though the ECB made only a minor change in its policy statement yesterday, its impact was enough to shake the Euro.

Yesterday's announcement of the European Central Bank's (ECB) policy meeting resulted in the catalyst that brought down the Euro's exchange rate in the forex market. The EUR/USD pair plummeted to a low range of 1.0949 in today's Asian session (July 28th), while EUR/JPY briefly fell below the 151.00 threshold following a more hawkish report from the Bank of Japan.

rate hike ecb

Yesterday, the ECB raised its three main benchmark interest rates by 25 basis points, in line with previous market expectations. However, they did not provide a clear signal regarding the prospects of further interest rate increases. Instead, the ECB softened its statement regarding future interest rate levels.

One of the sentences in the statement from the ECB's meeting last month read, "Interest rates will be brought to a sufficiently restrictive level." The latest meeting's statement was changed to "the Governing Council's (ECB) decisions in the future will ensure that the key ECB interest rates are set at a sufficiently restrictive level for as long as necessary."

The change marks a shift in the ECB's stance towards a more dovish position. In the press conference following the announcement, ECB President Christine Lagarde also confirmed that they intentionally changed "will be brought to" to "are set at."

Market participants perceived it as an attempt by the ECB to find reasons to halt the cycle of interest rate hikes shortly. As a result, the euro immediately tumbled.

"The question is whether this is it for the hiking cycle. In a very slight but important tweak to the statement's wording, the ECB has opened the door to a pause in September," said Mark Wall, Chief European Economist from Deutsche Bank Research.

"Dovish hike confirmed. And if we're all looking at the same data and forward-looking expectations, a September hike looks very unlikely," says Viraj Patel, FX Strategist at Vanda Research.