ECB policymaker Demarco says that the ECB will probably need to hike in June

ECB June rate hike nearly certain but July move seen as premature, sources say

ECB June hike near-certain as Middle East energy shock forces policymakers' hand

The ECB is poised for a rate hike in June, driven by external pressures from the Middle East energy crisis, which has shifted the focus from domestic inflation to imported costs. Per the full note [source], analysts now expect two 25 basis point hikes, bringing the policy rate to a neutral range of 1.75% to 2.5%. This marks a significant shift in market sentiment, as the ECB grapples with the dual challenge of managing inflation expectations while safeguarding economic growth. With the geopolitical landscape evolving, the market is closely watching for any signs of further escalation that could impact European energy supplies.

ECB policymaker Rehn: We are moving towards the adverse scenario

THINK Ahead: The big June gamble

The desk anticipates that European central bankers' threats of rate hikes in June may not be met with the clarity on inflation they seek, as highlighted by James Smith in his recent commentary. This uncertainty could lead to volatility in the euro as traders weigh the implications of potential policy shifts against a backdrop of mixed economic signals. Per the full note [source], the expectation of a rate hike is not firmly supported by forthcoming data, which could leave the ECB in a precarious position. Our consensus target for EUR/USD remains at 1.075, with a range reflecting the divergent views across the market.