ECB to hike once more in December as tighter conditions may not suffice: Deutsche Bank
The desk believes that Deutsche Bank's forecast of one final ECB rate hike in December will bolster the euro in the short term. This expectation is partly due to the ongoing risks associated with energy prices, which could jeopardize the ECB's existing monetary tightening efforts. Per the full note , the December hike is likely to influence euro front-end pricing significantly, particularly impacting Euribor and €STR futures, which are highly responsive to inflation metrics. Given that the consensus forecast for the EUR/USD is currently set at 1.15, any volatility in energy prices this winter could lead to further adjustments in market expectations.
What the desk is arguing
The desk is framing Deutsche Bank's projection of a final ECB rate hike in December as a pivotal moment for the euro, particularly in the short end of the curve. The commentary highlights how further increases in energy prices could provide ammunition for the ECB to tighten policy again, thus supporting the euro against its major counterparts.
The potential for a December rate hike is underscored by the ECB's current deposit rate at 2.5%, which has been maintained despite these pressures. The market's sensitivity to inflation prints remains acute, with the front end of the curve poised to react more vigorously to any energy price changes, supporting Deutsche Bank's view that conditions could become more favorable for the euro if inflation expectations begin to reignite.
Where it sits in our coverage
Our consensus target for the EUR/USD currently stands at 1.15, with a range among firms from 1.1162 to 1.2000. Notable targets for December 2026 include: - rabobank: 1.1800 - bnp: 1.1500 - mizuho: 1.1600
The desk's outlook aligns closely with the prevailing consensus, particularly as the expected December hike is likely to reinforce the euro's value at higher levels relative to the current spot price of 1.1253.
How firms align with this view
Key takeaways
- 01Deutsche Bank anticipates one final ECB rate hike in December, influenced by rising energy prices.
- 02Market sensitivity to inflation reports remains high, particularly impacting short-dated EUR contracts.
- 03Current consensus target for EUR/USD is set at 1.15, indicating expectations for strengthening euro against the dollar.
Market implications
Traders should watch levels around 1.1300 in EUR/USD as potential support or resistance, especially in the lead-up to the December ECB meeting. Any deviations in energy prices could shift expectations dramatically, leading to increased volatility.
Risks to this view
A reversal in the euro's appreciation could occur if energy prices stabilize or decline sharply, undermining the inflation narrative and the rationale for further ECB tightening. Additionally, any political instability ahead of upcoming ECB leadership changes could create uncertainty in monetary policy direction.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Morgan Stanley | Bullish | 1.2150 |
StoneX | Bearish | 1.1000 |
Standard Chartered | Bullish | 1.1800 |
A December “last hike” view mainly affects the euro front end, with Euribor, €STR futures and one- to two-year government bond yields most exposed to shifts in pricing. Capping expectations could reduce volatility further out the curve, while short-dated contracts stay sensitive to each inflation print. Energy is the swing factor: further gains in oil and gas prices would strengthen the case for tightening and could support the euro.
Leadership uncertainty adds a policy risk premium into 2027, which could weigh on the single currency if succession becomes politically contested. --- Earlier: investingLive Americas market news wrap: ECB holds, sources report says December hike --- Deutsche Bank thinks the ECB has one more hike in it, and that the coming change of personnel matters less than the price of energy. Summary: Deutsche Bank expects one more ECB rate hike in December, likely the last of the cycle Its view is that hikes so far and tighter financial conditions may not be enough if energy prices keep rising The ECB held all three key rates on Thursday, with the deposit rate at 2.5%, as Deutsche Bank expected Lagarde will step down in February, Schnabel leaves in January and Lane’s term ends in May Deutsche Bank says the leadership changes make the path harder to predict but do not automatically alter it Knot and Hernández de Cos are among the early contenders to succeed Lagarde Deutsche Bank expects the European Central Bank to raise interest rates one more time in December. It argues that the tightening already delivered may not be enough to contain inflation if energy prices keep rising.
The call follows Thursday’s ECB meeting, at which policymakers held all three key interest rates steady, leaving the deposit rate at 2.5%. Deutsche Bank had expected the pause, describing it as a measured response to the energy price shock. The euro and euro zone bond yields fell after the decision.
Mark Wall, chief European economist at Deutsche Bank Research, said the rate increases delivered so far are unlikely to be sufficient on their own if energy costs continue to feed through to consumer prices, even together with the tightening in financial conditions since September. The bank therefore still sees a final hike in December, a move it regards as the likely end of the current tightening cycle. Wall also acknowledged that forecasting the ECB’s path has become more difficult, in part because of a wave of leadership changes at the central bank.
President Christine Lagarde will step down in February, roughly nine months before her eight-year term was due to end in October 2027. She is only the second ECB president to leave early. Executive board member Isabel Schnabel is also departing a year early, in January, to take up a senior role at the International Monetary Fund.
Sources & References
How we cover this story
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