Preview: ECB set to hold rates in July, hints of September hike expected: ING
The ECB appears poised to maintain its current rates during the July meeting, with market participants leaning towards a hawkish hold that anticipates a September rate hike. Per the full note from ING, the bank forecasts EUR/USD stability around 1.140 and Bund yields at 3.15% in a hawkish hold scenario. Conversely, signs of dovishness could push EUR/USD lower to around 1.130 and yield a further drop in Bund yields. Given the current environment, the desk underscores the significance of oil price movements and potential ECB sentiment shifts as we look ahead to September decisions.
What the desk is arguing
The desk posits that the ECB is likely to hold rates this July while signaling a potential hike in September. Recent analysis from ING supports this view, indicating a hawkish bias that keeps EUR/USD around 1.140 and 10-year Bund yields near 3.15%, which suggests that market sentiment is aligning with ECB tightening expectations.
The backdrop involves firm inflationary pressures linked to oil prices, complicating the ECB's decisions. ING suggests that the EUR/USD pair faces downside pressure toward 1.130 if the ECB hints at a dovish stance, underscoring market sensitivities to central bank communications.
Where it sits in our coverage
The median consensus target for EUR/USD stands at 1.16, with the following firm targets: bofa at 1.1700, goldman at 1.1200, and citi at 1.1300 for December 2026. The desk's position is marginally above the current spot price and also aligns closely with the consensus range.
How other firms see it
Several firms, including goldman, bofa, and citi, are aligned with the desk's view, expecting a gradual strengthening of the euro against the dollar. Conversely, HSBC predicts a more bearish outlook, with targets suggesting a weaker euro, signifying a divergence in perspectives.
The trajectory of EUR/USD will likely reflect broader EUR sentiment influenced by the ECB's actions and the dynamics of oil prices, indicating a close watch on energy markets in the forthcoming month.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01ECB to hold rates in July, hints at September rate hike.
- 02EUR/USD projected to hold around 1.140 under hawkish conditions.
- 03Inflation pressures linked to oil prices influencing ECB stance.
- 04Cross-firm consensus aligns closely with the desk's strategy.
Market implications
Watch for EUR/USD levels around 1.140 and 1.130 that could signal changing sentiment. Focus on how any language from the ECB regarding rate expectations may impact positioning leading into September.
Risks to this view
A significant fall in oil prices or a dovish tone from the ECB may reverse current expectations, pushing EUR/USD back towards the lower end of the recent trading range. Additionally, if the Federal Reserve's policy shifts unexpectedly, this could also challenge the ECB's projected path.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Neutral | 1.1450 |
MUFG | Bullish | 1.1800 |
Bank of America | Bullish | 1.1500 |
ING's scenario analysis frames a hawkish-leaning hold as the base case, with EUR/USD seen holding around 1.140 and 10-year Bund yields near 3.15% under that outcome. A more dovish tilt would likely pull EUR/USD back toward 1.130 and Bund yields toward 3.05%, while a surprise 25bp hike could push EUR/USD to 1.150 and Bund yields to 3.20%. ING said rates continue to take their cue from oil, with a September hike already close to fully priced in barring an easing in crude prices.
On FX, the bank sees a hawkish ECB as necessary but not sufficient to keep EUR/USD above 1.140, with a retest of the June low near 1.133 flagged as a near-term risk. --- Earlier: FX strategists eye ECB hawkishness as Middle East risk lifts euro case Preview - ECB seen holding at 2.25% as Middle East conflict clouds outlook, September hike still in play Preview - Deutsche Bank sees ECB pausing this week before a September rate rise The ECB is set to stay quiet on rates, but oil and the Fed may end up doing the talking. Summary: The ECB is expected to hold rates on 23 July, with markets pricing in less than a 5% chance of a hike, according to ING. ING's baseline scenario is a hawkish-leaning hold, with hints of a September hike likely to surface via a post-meeting media leak rather than the official statement, per the bank's note.
ING's scenario table puts EUR/USD at 1.140 and 10-year Bund yields at 3.15% under its hawkish base case, against 1.150 and 3.20% in a very hawkish 25bp-hike scenario, according to the bank. A September hike is already almost fully priced into markets and unlikely to shift unless oil prices ease, ING said. Real rates are notably higher than a few months ago, helping explain why 2-year euro swap rates have hit fresh highs even with Brent still below $100, per ING.
ING attributed part of the shift to a less dovish than expected stance from Federal Reserve Chair Kevin Warsh, which it said has turned global sentiment more hawkish. The EUR:USD two-year swap rate differential has tightened by around 25bp since the early July escalation in the Gulf, according to ING, but the bank still flags a retest of the June low near 1.133 as a near-term risk for EUR/USD. The European Central Bank is widely expected to leave interest rates unchanged at its meeting on 23 July, with markets pricing in less than a 5 percent chance of a hike, according to ING.
Analysts at the Dutch bank said the expected hold marks a natural continuation from June's rate increase, which was largely driven by higher energy prices and felt more like an insurance move than the start of a broader tightening cycle. Even so, ING said the steady stream of geopolitical and energy market headlines since June means a surprise hike should not be entirely ruled out. Among the more realistic hold scenarios, the bank's own baseline leans hawkish.
Sources & References
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