ECB next move 'more likely to be a hike' than rate cut with PMIs expected to support Lagarde's

Matthew Ryan, CFA Ebury

Recent commentary by ECB officials, particularly Isabel Schnabel, confirms our view that the bank’s rate-cutting cycle is over and the next move is more likely to be a hike than a cut in rates.

While it is far too early for the Governing Council to explicitly raise this as a possibility, we think that Thursday’s meeting will strike an upbeat tone on the growth outlook - Lagarde effectively confirmed last week that the growth forecasts would be raised on Thursday.

We expect this week's PMIs to support this hawkish messaging by confirming that the Eurozone's economy remains surprisingly resilient.

As a result, the gap in short-term rates across the Atlantic is shrinking fast. This, combined with the emergence of Eurozone assets as an alternative to the US dollar should remain a tailwind for the common currency over the medium term.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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