MUFG Research discusses its expectations for the ECB policy meeting on Thursday.
"The next key event for the euro in the week ahead will be the ECB’s upcoming policy meeting on Thursday. The ECB is expected to strike a more hawkish tone and step up the pace of tightening in response to upside risks to inflation. The euro-zone rate market has moved to price in faster and more hikes from the ECB in recent weeks. Market participants are currently pricing in around 70bps of hikes for this week, and for the ECB to then keep raising rates to a peak of around 2.25% in 2023. Market expectations for a larger 75bps hike week were little changed by less hawkish comments from ECB officials yesterday," MUFG notes.
"We are still sticking to our view that the ECB will deliver a 75bps hike. If the ECB disappoints market expectations and delivers another 50bps hike it could reinforce euro weakness in the near-term. The balance of risks for the euro appear more tilted to the downside from the policy update given the euro-zone rate market is already repricing in a more aggressive rate hike profile and it has failed to provide much support for the euro," MUFG adds.