ECB policymaker Kažimír says that a rate hike in June is all but inevitable

What the desk is arguing

The desk believes that the ECB is on a path toward tightening monetary policy, with a June rate hike becoming increasingly likely. Per the full note source, Kažimír's comments indicate a consensus among ECB officials that inflation pressures are mounting, necessitating action.

The current market pricing reflects this shift, with an 81% likelihood of a 25 basis point hike in June and nearly 99 basis points expected by year-end. This aggressive pricing suggests that traders are anticipating a robust response from the ECB to combat inflation, which is now seen as broad-based across the economy.

Where it sits in our coverage

Our consensus target for EUR/USD is 1.075, with a range of 1.04 to 1.12. Notably, jpmorgan has set a target of 1.10 for March 2026, while bofa is more conservative at 1.04 for the same tenor.

This perspective aligns with the broader market sentiment, as the desk's view is at the upper end of the consensus range. The tightening narrative is gaining traction, and the desk's positioning reflects this bullish outlook on the euro.

How other firms see it

Firms like jpmorgan and citi are aligned with the desk's hawkish view, anticipating further rate hikes from the ECB. Conversely, bofa and deutsche express caution, suggesting that the ECB may not act as aggressively as the market expects.

The trajectory of EUR/USD is closely tied to ECB policy decisions, particularly in light of the ongoing inflationary pressures. Additionally, the dynamics between the ECB and the Federal Reserve will be critical to watch as they navigate their respective monetary policies.

What the calendar says

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