THINK Ahead: We’re forecasting fewer rate hikes than markets. Could we be wrong?
At a Glance
The desk is suggesting a more cautious outlook on future rate hikes from the European Central Bank (ECB) than currently priced by the market. As articulated in the commentary, ING's James Smith expresses skepticism regarding the sustainability of inflation pressures despite recent hawkish signals from the ECB, which have seen two-year swap rates jump following their latest meeting. With a market consensus seemingly anchored on additional hikes, including a potential October increase, the desk stresses that inflation's trajectory may not justify this aggressive path. Per the full note , ING’s forecast diverges from market expectations by anticipating fewer hikes amidst uncertainty about inflation shocks and the neutral rate stabilization.
Key Takeaways
- 01The desk is skeptical about multiple future rate hikes from the ECB, diverging from current market consensus.
- 02The recent market uptick in rate expectations was fueled by signals from the ECB, particularly from President Lagarde.
- 03ING posits that inflation shocks may be delayed, contradicting the hawkish sentiment driving market rates.
- 04Key firms like **jpmorgan** align with our cautious stance, while others like **bofa** maintain a bearish outlook.
Full Analysis
What the desk is arguing
The desk believes that the market may be overestimating the pace and scale of future rate hikes from the ECB. As outlined by ING, the recent surge in market expectations following the ECB's hawkish stance might be premature given the mixed signals in inflation metrics and economic conditions.
While markets are pricing in multiple rate hikes, including heightened expectations post-ECB meeting, ING posits that much of this inflationary pressure could be overstated or delayed. Notably, President Lagarde's remarks about persistent inflation contrast with softer food and energy price indicators, supporting the desk's cautious viewpoint.
Where it sits in our coverage
Our consensus target for EUR/USD stands at 1.075, with a range between 1.04 and 1.12. Aligned firms include: - jpmorgan: target 1.10 (Mar26) - bofa: target 1.04 (Mar26)
This call aligns with jpmorgan but stands at the upper bound of the range, suggesting a cautious approach towards currency movements given potential ECB dynamics.
How other firms see it
Firms like jpmorgan appear to resonate with our cautious outlook, while bofa maintains a more bearish stance on EUR/USD amidst anticipated economic headwinds. Such divergent views underscore the uncertainty in currency impacts as central banks reassess inflation pressures and rate strategies.
Look at the interplay between the EUR/USD trajectory and upcoming ECB meetings, as they may influence trader sentiment and volatility in the currency pairs in the near term.
Market Implications
Traders should focus on the EUR/USD level around 1.075 as a critical pivot point, especially in the light of shifting central bank communications. The upcoming ECB meetings could serve as vital indicators of future rate intentions, and the market's response could provide insight into potential trend reversals or affirmations.
From the original
Opinions Opinion by James Smith THINK Ahead: We’re forecasting fewer rate hikes than markets. Could we be wrong? Published 14:40 After this week's hawkish antics at the ECB, markets are pricing in loads more rate hikes, with no cuts in sight. At ING, we're not convinced. James Sm
Related speeches
4 itemsRates: Dealing with the rate hike narrative
The desk posits that while the market may be pricing in aggressive rate hikes, a more moderate approach is warranted based on the current rate hike narrative. Per the full note by Padhraic Garvey at ING, the desk suggests that even though hikes may not fully materialize, the anticipation and positioning toward the hikes will drive market dynamics. This perspective is especially relevant for the EUR/USD pair, where it appears the market is leaning towards a 25 basis point hike from the ECB, pushing the deposit rate toward 2.75% over the next year, despite skepticism about the delivery of all projected hikes. With the current EUR/USD trading at 1.1679 and firm targets indicating a December consensus around 1.2000, there is room for volatility in response to ECB messaging and the rate environment.
Rates Spark: Oil back above $100
Per the full note [source], ING's Benjamin Schroeder and Padhraic Garvey argue the ECB will deliver a 25bp hike to a 2.50% deposit rate today, but that the market is priced too hawkishly for what comes after — oil above $100/bl and record-high European gas add cost-push complexity rather than a clean hiking signal, and nervousness around eurozone fiscal trajectories reinforces a dovish bias. The desk's core claim is that a dovish ECB surprise is more likely than a hawkish one, precisely because markets already discount more than 50bp of further tightening beyond September, taking the deposit rate to at least 3%. Our coverage shows EUR/USD spot at 1.1446 against a Mar-26 consensus of 1.1700 (range 1.1200–1.2000) and a Dec-26 median of 1.1700, so the street is structurally long euros relative to spot — a stance that leans on the same ECB-hawkishness that ING is fading. No high-impact events sit on the calendar in the next 30 days, meaning the proximate driver for the pair is the ECB communication itself, not incoming data.