European Central Bank: September hike seen as highly likely – Deutsche Bank

Deutsche Bank strategists note that the European Central Bank (ECB) kept its deposit rate at 2.25%, while its communication continued to leave the door open to further tightening. They now see a September increase to 2.50% as highly likely, with the risk of an additional hike if energy prices remain persistently elevated or evidence of second-round effects emerges.

ECB guidance underpins Euro rate expectations

"Staying with the ECB, in their latest policy decision yesterday they kept their deposit rate at 2.25% as widely expected, while implying that further hikes were still likely."

"Both the short decision statement and Lagarde’s press conference noted that the latest outlook was broadly unchanged relative to the ECB’s June baseline scenario which had been predicated on market pricing of three hikes this cycle (so two more after the June hike)."

"Lagarde also said yesterday that the ECB’s reaction function was "very well understood" by markets, showing no desire to push back on market pricing."

"Our European economists now see a September hike to 2.50% as a near done deal."

"Risks are clearly skewed towards a further hike thereafter, but this would require persistently elevated energy prices and/or evidence of second-round effects."