Nordea’s Chief Analyst Jan von Gerich expects the European Central Bank (ECB) to leave policy rates unchanged at the April meeting while keeping all options open for June. He anticipates a hawkish communication tone that underpins market expectations for a June hike. Recent Purchasing Managers' Index (PMI) weakness, softer price data and still-contained inflation expectations allow the ECB to wait, but inflation concerns persist.

Hawkish hold with June hike risk

"The ECB is set to keep rates unchanged at the April meeting and to signal that all options are open for the June meeting."

"The communication is likely to strike a hawkish tone, supporting expectations of a hike in June."

"Overall, recent data developments still allow the ECB to wait for more information."

"However, genuine inflation worries were already evident at the March monetary policy meeting and are unlikely to have eased since."

"The no-pre-commitment Governing Council is unlikely to signal any clear intention to raise rates at the June meeting, but the tone of the communication is still set to be on the hawkish side."

"Swings in sentiment and expectations around the situation in the Middle East retain significant potential to change market pricing rapidly."

"A 25bp rate hike in June is not fully priced in, while a total of around 2.5 rate increases are priced in by year-end."

"We continue to see four hikes this year, though with risks tilted to the downside, which leaves upside potential relative to current market pricing."

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