ECB set for June ‘insurance’ hike as energy shock raises policy risks

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

The desk views the ECB's trajectory as increasingly hawkish, with a June rate hike now nearly certain following comments from policymaker Kažimír. Per the full note [source], the market has priced in an 81% probability of a 25 basis point increase, reflecting growing concerns over inflation driven by rising energy prices. This sentiment aligns with our consensus target of 1.075 for EUR/USD, as the market anticipates further tightening through the year. The divergence in views among ECB officials, particularly with Villeroy's more cautious stance, adds complexity to the outlook.

ECB's Nagel says bank may have to act in June as Iran energy shock spreads

ECB policymaker Schnabel says that a June rate hike will be needed