ING’s Francesco Pesole expects the ECB to leave rates unchanged but deliver a hawkish hold, with Middle East tensions and rising European gas prices keeping hawks in control. He argues policymakers aim to preserve market pricing of around 45bp of tightening by year-end, likely via a familiar post-meeting media leak, which should support front-end Euro rates even as ING’s near-term EUR/USD bias remains tilted lower toward 1.1380.

Hawkish ECB hold may limit Euro downside

"The ECB is widely expected to leave rates unchanged today, but a surprise hike cannot be fully ruled out."

"Our baseline is a hawkish hold. The re-escalation in the Middle East and European gas prices rising faster than oil prices should keep hawkish voices dominant in the governing council, in our view."

"The aim today could be – once again – to preserve market pricing (45bp by year-end) to limit the risk of inflation expectations de-anchoring."

"Achieving that may well require some indication that a September hike remains in play – more likely through a familiar post-meeting media leak than directly in the press conference."

"A central bank meeting would normally be a prime catalyst for EUR/USD to break out of its tight trading range, but we do not expect that to happen today. Our near-term bias remains tilted to the downside, as we believe FX markets are dangerously complacent about developments in the Gulf. Unless the newsflow becomes more constructive, we look for EUR/USD to slip towards 1.1380 in the coming days."

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