BNY’s Bob Savage notes that an European Central Bank (ECB) rate hike is widely expected, but guidance on future moves and growth risks will be crucial for EUR/USD. The bank argues the Governing Council is unlikely to commit to a prolonged tightening cycle, with the Euro already trading near ECB projections and a modestly weaker Euro (EUR) potentially desirable for exporters.

ECB guidance to shape Euro path

"An ECB hike on Thursday is considered a foregone conclusion but uncertainty remains regarding what happens next."

"For now, we believe the “don’t forget growth” message is strong enough (at least behind closed doors) such that the Governing Council will not be able to commit to a prolonged cycle, and that would already risk some downside risk in the euro: any increase in exposures which solely responded to the wide gap between ECB expectations versus peers would require some moderation."

"Compared to 2025, we note that the ECB is no longer playing “catch-up” to the EUR’s performance, as the currency is now trading around the levels anticipated in its past three Staff Projections."

"This means negligible impact either way, and the ECB should note that the recent surge in hawkish pricing has not supported the currency, both in terms of levels and also positioning – the currency remains underheld in iFlow."

"If anything, a modestly weaker EUR is probably desirable to help exporters."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)