Euro: ECB tightening supports currency – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad expects the European Central Bank (ECB) to deliver another 25 bps hike this week, taking the policy rate to 2.50%, supported by above-target Eurozone inflation and a firmer growth outlook.
Brown Brothers Harriman's Elias Haddad anticipates the European Central Bank (ECB) will again raise interest rates by 25 basis points this week, pushing the policy rate to 2.50%. This move is backed by Eurozone inflation exceeding target levels and a brighter growth outlook. Haddad expects the swap curve to reflect rates at 3.00% over the next year, indicating a favorable macro environment for the euro.
The ECB is expected to follow up with another rate hike in June, potentially bringing the policy rate to the upper limit of its 1.75%-3.00% neutral range. Despite higher energy prices, including 8% and 44% increases in Brent crude oil and natural gas prices, the positive economic indicators and slightly softer core inflation are balanced out.
EUR remains supported by the macro backdrop, with the swaps curve fully pricing in a 3.00% rate in twelve months.
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