Euro rises as report says the ECB very likely to hike in June
The desk sees the euro gaining momentum as the European Central Bank (ECB) signals a strong likelihood of rate hikes starting in June. Per the full note from InvestingLive, ECB sources indicate that policymakers are broadly in agreement on the need for at least two hikes unless geopolitical tensions ease and oil prices decline. This aligns with the market's growing anticipation of a tightening cycle, which could further support the euro against its peers.
What the desk is arguing
The desk posits that the euro's recent appreciation is underpinned by credible signals from the ECB regarding imminent rate hikes. Per the full note from InvestingLive, ECB sources have suggested that a June hike is 'very likely,' with several governors advocating for at least two increases unless there is a favorable resolution to ongoing geopolitical conflicts.
Supporting this view, the ECB's discussions reflect a consensus on the necessity of tightening monetary policy in response to inflationary pressures, particularly in light of rising oil prices. The commentary notes that several governors believe that without a significant drop in Brent crude, further hikes are essential to stabilize the economy.
Where it sits in our coverage
Our current consensus target for the euro stands at 1.075, with a range from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This perspective aligns with jpmorgan, which is positioned at the higher end of the range, while bofa presents a more cautious outlook. The desk's call reflects a bullish sentiment that is consistent with the prevailing market dynamics.
How other firms see it
Firms like jpmorgan and citi are aligned with the bullish outlook on the euro, anticipating further strength as the ECB pivots towards tightening. Conversely, bofa and deutsche maintain a more bearish stance, projecting weaker euro performance amid economic uncertainties.
The trajectory of EUR/USD will be closely tied to the ECB's rate path, while developments in geopolitical tensions and oil prices will also play a critical role in shaping market sentiment.
What the calendar says
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Key takeaways
- 01ECB signals strong likelihood of June rate hikes
- 02Policymakers advocate for at least two hikes
- 03Geopolitical tensions and oil prices critical to future decisions
- 04Market sentiment increasingly bullish on euro
Market implications
Traders should monitor the 1.075 level closely, as a sustained break above could signal further euro strength. Additionally, the upcoming ECB meeting in June will be pivotal in shaping market expectations and positioning.
The euro is rising after ECB sources cited by Reuters said: June hike "very likely" and policymakers were in broad agreement Some already advocated for a hike (Lagarde hinted at this) Several Governors think at least two hikes will be needed unless the war ends and Brent quickly drops Governors discussed the required amount of tightening The headline said the policymakers "see the first of several hikes in June" and that they're likely to hike "at least twice" unless there is a favorable resolution to the Iran war and oil prices drop. This article was written by Adam Button at investinglive.com.
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