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ECB’s September hike still the base case despite stronger euro inflation

Euro area core and services inflation rose in July, but TD Securities said the data suggests limited signs of durable second-round effects, keeping a 25 bp September hike as the market baseline.

Reported · Written up by our desk · Central Banks

TD Securities strategists said the European Central Bank’s September rate hike remains the base case, even after euro area inflation data showed a pickup in July.

They pointed to Euro area Harmonised Index of Consumer Prices inflation rising to 2.9% year over year, with core inflation at 2.5% and services inflation at 3.3%, which they said provides only limited evidence of meaningful second-round effects.

Markets are still pricing a 25 basis point ECB rate increase for September, according to the same analysis, with TD adding that only a clear and durable resolution to the Middle East conflict would likely shift the outlook.

The newsletter also noted that in currency markets, safe-haven demand for the US dollar and stronger eurozone core inflation helped shape moves in pairs such as GBP/USD and EUR/USD on the day.

Latest closeEUR/USD 1.153 ▲1.3%|GBP/USD 1.347 ▲1.4%

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