The European Central Bank (ECB) is expected to maintain a cautious and balanced stance this week, with both Commerzbank and MUFG analysts highlighting the impact of recent energy price shocks and ongoing geopolitical risks in the Middle East on the euro-zone economy [1][2]. According to Commerzbank’s Rainer Guntermann, upcoming April HICP data is anticipated to reveal a rebound in headline inflation primarily driven by energy prices, while core inflation is expected to temporarily dip [1]. Guntermann notes that, outside of a severe oil price scenario ($145/bbl), current ECB projections do not clearly justify immediate rate hikes, and recent verbal interventions from ECB members support holding rates steady for now [1]. However, unresolved risks in the Middle East could prompt a precautionary rate hike as early as June [1].
MUFG strategists report that the EUR/USD has retreated toward the middle of its 1.1400–1.2000 range, with the pair falling below 1.1700 after peaking at 1.1849 on April 17th, reversing gains made after the initial Middle East conflict shock [2]. The euro’s recent correction is attributed to disappointment over stalled US–Iran talks and the negative impact of the energy price shock on the euro-zone economy [2]. MUFG highlights that the ECB has outlined three scenarios—baseline, adverse, and severe—in response to the energy shock, with President Lagarde recently stating that the economy is currently positioned between the baseline and adverse scenarios, and that European natural gas prices remain below the baseline [2].
Both sources agree that the ECB is likely to delay any tightening until June, with MUFG expecting a cumulative 50 basis points of rate hikes, and Commerzbank suggesting a 'precautionary hike' could occur in June if Middle East risks persist [1][2]. This anticipated delay creates near-term policy divergence with the US Federal Reserve, which appears more comfortable looking through the energy price shock [2]. Narrowing yield spreads have provided some support for the euro and softened USD strength in response to the energy shock [2].
No specific market reactions beyond currency movements are discussed, and both sources emphasize the importance of upcoming inflation data and geopolitical developments in shaping the ECB’s next steps [1][2].
CONCLUSION
The ECB is expected to hold rates steady this week, with a possible rate hike in June if energy-driven inflation persists and Middle East risks remain unresolved. Both Commerzbank and MUFG highlight the euro’s vulnerability to energy shocks and policy divergence with the Fed, suggesting continued market caution in the near term.