Deutsche Bank economists expect the ECB to keep rates on hold but to acknowledge greater uncertainty and upside risks to near-term inflation following the Iran conflict and Oil spike. Markets now price in at least one ECB rate hike by July and two by year-end, with inflation swaps moving sharply higher across the curve.

Market shifts toward renewed tightening

"Looking forward, central banks will stay in the spotlight with both the ECB and Bank of England announcing their latest decisions today. For the ECB, it’s widely expected they’ll follow the Fed and the BoJ in keeping rates on hold."

"However, the Iran conflict has led to a big shift in pricing since the last meeting, with markets now pricing in an ECB rate hike by July and two hikes by the end of the year."

"So today the focus will be on how they communicate around that, and our European economists think they’ll acknowledge higher uncertainty and the upside risks to near-term inflation."

"They also think there’ll be a strong message that underlines the ECB’s commitment to price stability, and that they’re willing to act to avoid a repeat of the 2022-23 inflation shock. Indeed, they point out that saying this loudly and clearly might be the best way of ensuring inflation expectations stay well anchored."

"Today also marks the start of a two-day EU leaders’ summit. Higher energy prices will be a big topic, though our economists expect that for now the policy response will be focused on country-level energy tax cuts "

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