Today, all eyes will be on the ECB. Economists at ING analyze EUR/USD outlook ahead of the Monetary Policy Decision.
Hawkish ECB, but will we hear more about QT?
Assuming the ECB does maintain market expectations that the deposit rate (now 3.50%) will be close to 4.00% by the end of the year, what else could we see?
One intriguing idea is that the hawks, in exchange for backing off from subsequent rate hikes, will be given something on quantitative tightening. Currently, re-investments of the APP scheme ended last month. PEPP reinvestments are targeted to continue until the end of 2024. Could PEPP reinvestments be cut shorter, or could the discussion move onto outright asset sales – moves that might upset both peripheral government bond markets and European credit markets? The market reaction might be tricky, but presumably, EUR/CHF could stay under pressure should this be the case.
We do not have a strong conviction call on EUR/USD today but would say 1.1150 looks good intra-day resistance and 1.1000/1020 is now the lower end of the near-term trading range.
See – ECB Preview: Forecasts from 12 major banks, the final 25 bps?
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