ECB rate hike expectations increase

FRANKFURT (Apr 8)  After recent comments from central bankers in Europe and the latest ECB minutes, money markets have now started to price in a slightly more aggressive stance than previous forecasts. Money markets are now pricing in over 65bps of hikes by the end of 2022 vs 60bps on Thursday.

According to the March meeting minutes, a few ECB governing council members suggested that the ECB is behind the curve in the fight against inflation. Klaas Knot of the Netherlands and Pierre Wunsch of Belgium noted that the central bank could do so twice this year. Having said that not all members feel the same way. ECB's Panetta said tightening monetary policy too soon would "would mean considerably lowering real activity and employment, knocking down wages and income,".

From the investment banks, Goldman Sachs changed its call on ECB interest rates. The American investment bank now sees 25bp ECB rate hikes in September and December.

In terms of a EUR reaction, it has been very limited. This could be due to the more hawkish stance from the Fed members over the last week or so too. Some Fed members are calling for more hikes and a quicker run-off for the balance sheet. The EUR/USD pair clearly represents the central bank that has been more proactive over the last few months.

KITCO