According to ING’s Francesco Pesole, the European Central Bank (ECB) is expected to maintain a broadly hawkish tone in upcoming communications, with President Christine Lagarde scheduled to speak in Washington and several Governing Council members also making remarks earlier in the day [1]. This stance is attributed to ongoing volatility in the Gulf region, which continues to influence market expectations [1]. Pesole notes that it would be surprising for markets to hear any suggestion from ECB officials that de-escalation in the Gulf would reduce the likelihood of further monetary tightening [1].
Market pricing for the ECB’s 30 April meeting currently reflects a modest 10 basis point tightening, with the possibility that a lack of urgency in ECB comments could help investors align with a hold decision for this month [1]. However, swap pricing indicates that two additional rate hikes later in the year are becoming increasingly entrenched in market expectations [1].
Regarding the EUR/USD currency pair, ING argues that clear progress in US-Iran talks is necessary for the euro to sustainably rise above the 1.180 level [1]. The interplay between ECB policy signals and geopolitical developments in the Gulf remains a key driver for the currency’s near-term trajectory [1].
CONCLUSION
The ECB is expected to maintain a hawkish stance due to Gulf region volatility, with markets pricing in modest tightening at the upcoming meeting and two further hikes this year. Progress in US-Iran talks is seen as essential for a sustained EUR/USD rally above 1.180. Market participants are closely watching ECB communications and geopolitical developments for further direction.