Credit Agricole CIB Research discusses the ECB policy trajectory.
"EUR/USD has regained some ground more recently on the back of growing Eurozone rates and yields that have helped the EUR-USD rate spread consolidate. The latter moves reflect growing ECB rate hike expectations as market estimates of the terminal policy rate hit 4% in the wake of surprisingly strong inflation data out of France and Spain yesterday," CACIB notes.
"We think that the path of least resistance for the Governing Council in coming months would be to push rates higher but in a more data dependent and gradual way than before. The approach would give the ECB the flexibility to respond to the growing negative impact of its policy tightening on the Eurozone’s lending channel and address the need to start reducing the ECB’s balance sheet," CACIB adds.