ECB: Caution with softer tightening bets – BNY

BNY’s Head of Markets Macro Strategy Bob Savage notes that money markets scale back expectations for European Central Bank tightening. Comments from ECB officials stress calm and warn against overreacting to Iran, even as one policymaker sees higher probability of a rate hike, with swaps now pricing fewer basis points of hikes by year-end.

Energy relief tempers ECB hike pricing

"In the meantime, the money markets have retreated from bets on further tightening, as energy prices tumbled on expectations that the Iran war may end sooner than feared."

"Swaps are now pricing in around 22bp of ECB hikes by year-end, down from 33bp on Monday, and imply less than a 50% chance of a June increase."

"ECB Governing Council member Gediminas Šimkus has said it is “important to stay calm” and that policymakers “shouldn’t overreact to the situation in Iran,” warning that a deeper crisis could have implications for prices and growth."

"Meanwhile Georg Muller said that the “probability of a rate hike has gone up of late” but that the ECB “shouldn’t rush into any decisions.”"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)