ecb september hike expectations stayed in focus on Thursday, with markets widely expecting the ECB to leave interest rates unchanged.
Officials are also expected to repeat that they can handle uncertainty and will keep a data-dependent, meeting-by-meeting approach. Because the ECB will not publish new macroeconomic projections at this meeting, attention is set to fall on President Lagarde’s press conference. Traders want signals on whether policymakers are moving toward another increase in September.
The case for a pause has grown in recent weeks. Eurozone inflation eased in June, while services inflation came in weaker than expected. Wage growth also kept softening, and inflation expectations stayed fairly anchored. Meanwhile, business surveys pointed to weak economic activity, which suggests the ECB can wait for more evidence before tightening again.
ECB September Hike Signals
Recent remarks from ECB members have sounded measured. They noted that higher oil prices pose an upside risk to inflation. However, they also said the feared second-round effects through wages have not appeared. Several members also pointed to the lack of lasting wage pressure, which supports a more patient stance.
At the same time, risks to inflation and growth have risen again. The source article said renewed US-Iran conflict lifted those risks. Oil prices have moved back above $90 per barrel, amid disruptions in the Strait of Hormuz and the Red Sea. As a result, those factors are likely to keep the ECB’s tightening bias in place.
Market Pricing Before the Decision
Traders expect a hawkish pause from the ECB. They also expect Lagarde to stress that future moves will depend on incoming data, while keeping the option of another increase open if inflation risks grow. In addition, the source article said the most likely outcome is a usual post-meeting media leak that would point to a September hike if inflation data surprise to the upside.
Markets are pricing in 47 basis points of tightening by year-end, or about two rate hikes. They also see a 73% chance of an increase at the next meeting in September. Given that setup, the source article said it will be hard for Lagarde to sound more hawkish than markets already expect.
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Source: InvestingLive
