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ECB pause expected to limit euro downside versus dollar

BBH expects the ECB to keep rates at 2.25% this week, citing data dependence and Eurozone CPI tracking slightly below the central bank baseline.

Reported · Written up by our desk · Central Banks

Brown Brothers Harriman strategist Elias Haddad expects the ECB to hold its policy rate at 2.25% this week after a 25 basis point hike in June, with the decision framed as meeting by meeting and without updated projections.

The outlook hinges on euro area conditions, as Eurozone CPI indicators are tracking slightly below the ECB’s baseline forecast, while a rebound in energy prices is still lagging the assumption in the ECB’s case.

Haddad also notes that there are no updated macroeconomic projections tied to this meeting, and that the ECB is expected to stick to its data dependent approach rather than pre commit to a specific rate path.

Markets are pricing an additional 25 basis point hike in September and more than 50 basis points of tightening over the following 12 months, but BBH argues tighter policy against a backdrop of growth below potential is more likely to cap downside for the euro than to drive a meaningful appreciation.

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