ECB Preview: A 50bp hike with a hawkish twist – Danske Bank

Next week, the European Central Bank will have its monetary policy meeting.  Analysts at Danske Bank see the central bank raising rates by 50 basis points and to continue rising rates into the first quarter of next year. They see the deposit rate peaking at 2.75%, but with risks skewed for more hikes. 

Key Quotes: 

“At next week’s meeting, we expect the ECB to deliver a 50bp rate hike with a hawkish twist. Specifically, we expect the ECB to present key principles of the end to reinvestments under the APP process (in which reinvestments will almost come to a full stop) and an open-ended wording for more rate hikes to come. This will be a compromise, which we believe will be palatable to both hawks and doves.”

“For EUR/USD, the ECB meeting will conclude a busy week that also includes US CPI and the FOMC meeting. Overall, we do not expect a ‘hawkish 50bp hike’ will leave a big impact on EUR/USD, but it depends on the momentum heading into the meeting. The market may feed off a hawkish ECB, if US CPI inflation drops again and the Fed comes across as dovish and sends EUR/USD to new highs. Vice versa, higher US CPI inflation may turn around momentum in EUR/USD, send it back down and leave the ECB meeting less relevant.”