EUR/USD: Another ECB hawkish policy update to support the euro – MUFG

The broad-based US dollar sell-off this week has helped to lift EUR/USD back above parity. Today, the European Central Bank (ECB) is expected to raise rates by 75 basis points. This should provide further support to the euro, economists at MUFG Bank report.

ECB to deliver another hawkish policy update 

“We expect the ECB to deliver another 75 bps hike and to leave the door open to further large hike at the final meeting of the year in December. We then expect the ECB to slow the pace of hikes in 2023 as it becomes more evident that the eurozone economy has slowed sharply in the 2H of this year, and inflation has peaked out. 

“The ECB is also expected to discuss in more detail plans to begin shrinking their balance sheet through quantitative tightening at today’s meeting although plans to allow assets to roll off and not be replaced are unlikely to be implemented until next year.”

“Overall, the ECB’s increasingly hawkish policy stance should continue to offer more support for the euro. Inflation should continue to dominate growth concerns when setting policy at the current juncture.”

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike