Francesco Pesole of ING anticipates that the ECB will maintain a hawkish hold while leaving rates steady due to concerns in the Middle East and rising gas costs in Europe. He contends that policymakers want to maintain market pricing of about 45 basis points of tightening by year's end, most likely through a well-known media leak following the meeting. This should boost front-end Euro rates even though ING's near-term EUR/USD bias is still slanted lower toward 1.1380.
Hawkish ECB hold may limit Euro fall
"A surprise raise cannot be completely ruled out, but the ECB is largely expected to leave rates steady today."
"A hawkish hold is our baseline. We believe that the re-escalation in the Middle East and the greater rise in European gas costs compared to oil prices should maintain the dominance of hawkish voices in the governing council.
"To reduce the risk of inflation expectations de-anchoring, the goal today could be – once again – to maintain market pricing (45bp by year-end)."
"Achieving that may well require some indication that a September hike remains in play — more likely through a familiar post-meeting media leak than directly at the press conference."
"We do not anticipate that EUR/USD will break out of its narrow trading range today, although a central bank meeting would typically be a major stimulus for that to happen. Because we think Forex markets are dangerously complacent about events in the Gulf, our near-term bias is still skewed downward. We anticipate that EUR/USD will decline toward 1.1380 in the upcoming days until the newsflow improves.
Hawkish ECB hold may limit Euro fall
"A surprise raise cannot be completely ruled out, but the ECB is largely expected to leave rates steady today."
"A hawkish hold is our baseline. We believe that the re-escalation in the Middle East and the greater rise in European gas costs compared to oil prices should maintain the dominance of hawkish voices in the governing council.
"To reduce the risk of inflation expectations de-anchoring, the goal today could be – once again – to maintain market pricing (45bp by year-end)."
"Achieving that may well require some indication that a September hike remains in play — more likely through a familiar post-meeting media leak than directly at the press conference."
"We do not anticipate that EUR/USD will break out of its narrow trading range today, although a central bank meeting would typically be a major stimulus for that to happen. Because we think Forex markets are dangerously complacent about events in the Gulf, our near-term bias is still skewed downward. We anticipate that EUR/USD will decline toward 1.1380 in the upcoming days until the newsflow improves.
