Our projection for the ECB rates in a couple of hours is that the rate hike will be stronger than expected for several reasons.
- Energy inflation has impacted the key countries of Europe, specifically Germany.
- Aversion to inflation within the EU will impact the decision towards the high side.
- Without viable options in the ST regarding gas prices, the ECB is probably thinking that these price preassures will not go away.
- ECB has to keep up with FED. Otherwise, risk that inflation gets out of hand and rate rises will need to catch up later. Thus, the doves on the ECB will consider this aspect.
- Co-ordinated currency intervention due to the strenght of the USD might be needed in future.
Our projection: rate hike of 0.75
Two Likely Scenarios on the Hikes
More Agressive Path: 0.75, 0.50, then 0.25
Consistant Rise Path: 0.50, 0.50 and 0.50