Analysts at Danske Bank revised their forecast for the European Central Bank and now look for a rate hike in September and December. Despite the more hawkish stance from the ECB, they still forecast EUR/USD at 1.05 in twelve months. 

Key Quotes: 

“We revise our ECB call slightly after the recent Governing Council (GC) comments, hawkish minutes and inflation surprises. We now look for a 25bp rate hike in both September and December 2022. Beyond that, we do not look for a prolonged hiking cycle into 2023 at the current stage as inflation falls back to target and Fed tightening will also have contributed to a significant tightening of financing conditions globally – thereby worsening the economic outlook.”

“While we expect the statement to re-confirm the decisions taken at the March meeting just 4 weeks ago, with its guidance to end APP during Q3 and the first hike to come ‘some time’ after the end of net asset purchases, we believe the press conference will be the most interesting part, where we expect Lagarde to repeat the gradual, flexibility and optionality mantra. While we do not expect Lagarde to directly mention a September rate hike as a possibility, similar to other voices in the GC, we believe she will keep the door open as a way to respond to high inflation pressures.”

“It seems likely that ECB is moving towards a more hawkish stance. For EUR/USD, if this is indeed confirmed at the upcoming meeting then we may see some upside risk to spot on the day. However, looking beyond the event of the ECB meeting itself, downside risk to EUR/USD spot will likely persist as spreads widen further in Europe (vs. Germany) and the economy continues its slowdown. (…) We continue to forecast 1.05 in 12M.”

This article was originally published by Fxstreet.com.Read the original article here.

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