TD with their forecast for the next European Central Bank meeting and those following:

  • expect a +50 basis point rate hike again in September
  • +25 bps thereafter until the repo rate hits a terminal level of 1.5%

Remarks from the TD report:

The ECB delivers a 50bps rate hike hedged with its new TPI tool and PEPP reinvestments.

  • Price action in front-end was still relatively muted as markets were already positioned for bigger moves after this week's leaks. The ECB's tool was credible, but the key issue is will any member state "activates" it. We consider that the path for peripherals could be rocky. We continue to favour flatter 5s30s curve and wider EGB spreads.

The ECB delivered a 'surprise' 50bp hike and an anti-fragmentation tool.

  • Despite this, today's ECB decision looks more like a faux-flex than a resolute commitment to fight inflation. There is little the ECB can do to avert an impending energy crisis or an implosion in the current account. EUR's recent rally is increasingly looking like a strategic fade as a sub-parity paradigm looks increasingly difficult to avert.
Lagarde July 21 2022