Bank of America Global Research discusses its expectations for next week's ECB policy meeting and its EUR bias over the coming weeks.
"Our economists have just changed their ECB call to 75bp for next week (and then expect 50bp in Oct, followed by 4 hikes by 25bp, with terminal deposit and refi rates at 2.25% and 2.75% in Jun-23). They see risks for more, and we agree. The market is pricing 67bp for next week (and 58bp for October). If the ECB goes with 50bp, we would be concerned markets will see them as not committed enough to fighting inflation
Still, this may not be enough to support EURUSD. Communication will matter much more, in our view. The EUR needs strong statements from Lagarde that the ECB will do whatever it takes to bring inflation down to the target...We doubt her message will be that strong," BofA notes.
"Still, the ECB catching up should offer some support to EUR crosses. Indeed, as the market has already been expecting more from the ECB, the EUR was the 2nd best performing currency in G10 in August, after the USD. We like EURCHF, as the ECB will now be hiking more than the SNB. We also like EURGBP, particularly ahead of fiscal policy uncertainty and Brexit risks related to the Article 16 of the Northern Ireland deal with the EU, although we are also aware of the strong consensus against GBP," BofA adds.