ECB's Muller: The ECB will need a fast resolution on Hormuz to hold in June

What the desk is arguing

The desk believes that the ECB's need for a quick resolution in Hormuz is critical to maintaining its current policy stance. Per the full note source, Muller’s comments highlight the delicate balance the ECB must strike between rising inflation and economic growth, as the Eurozone has not yet entered stagflation despite recent pressures.

Supporting this view, Eurozone GDP growth was only 0.1% in Q1, and recent PMIs indicate a slowdown in economic activity, which could necessitate a more aggressive response from the ECB if inflation continues to rise. The central bank's current deposit rate remains at 2%, but the potential for rate hikes looms if oil prices do not stabilize.

Where it sits in our coverage

Our consensus target for EUR/USD is 1.075, with a range of 1.04 to 1.12. Notable targets from other firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns with jpmorgan, which supports a bullish outlook on the euro, while bofa presents a more cautious stance at the lower end of the range. The desk's position is closer to the upper bound of the consensus spread, indicating a more optimistic outlook on the euro's resilience against inflationary pressures.

How other firms see it

Firms like jpmorgan and citi are aligned with the desk's perspective, suggesting that the ECB may need to act decisively if inflation persists. Conversely, bofa and deutsche bank express concerns about the potential for economic slowdown, advocating for a more cautious approach.

Watch the EUR/USD trajectory closely, as it is likely to reflect the ECB's rate path and the evolving geopolitical landscape. Additionally, monitor Brent crude prices for their impact on inflation and ECB policy decisions.