Euro: ECB hawkish path supports pair – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports EUR/USD is trading heavy around 1.1600 after a hawkish 25 bps European Central Bank (ECB) hike to 2.50%. President Lagarde called the move a “no brainer” and signaled more hikes as inflation is seen above target for an extended period. With higher inflation and growth projections and policy heading toward the upper end of neutral, they see EU–US rate differentials broadly supportive for EUR/USD.

Hawkish ECB stance underpins Euro outlook

"EUR/USD is trading heavy around 1.1600. The ECB delivered a hawkish hike yesterday. As was widely expected, the ECB raised the policy rate 25bps to 2.50%. "

"ECB President Christine Lagarde said the decision was unanimous and a “no brainer.” Importantly, the ECB signaled more hikes are in the pipeline noting that “inflation is set to remain well above target for an extended period”, while highlighting the greater resilience of the Eurozone economy."

"Specifically, the ECB revised its baseline inflation projection higher for 2027 and 2028, while 2026 was unchanged. Baseline projection for real GDP growth was revised higher for both 2026 and 2027, while 2028 was unchanged."

"The ECB also cautioned “the outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth.”"

"Overall, the ECB is on track to bring the policy rate closer to the upper end of its 1.75%-3.00% neutral range. The swaps curve is more aggressive and implies ECB rates at 3.50% in the next twelve months. Bottom line: EU-US rate differentials remain broadly supportive for EUR/USD."

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