Commerzbank strategist Hauke Siemßen argues that ECB expectations will dominate trading, with forwards now fully pricing the first rate hike by September and only a 50% chance of another move by year-end. He expects President Lagarde to strike a relatively hawkish tone to anchor inflation expectations, while doubting that the ECB will ultimately deliver a hike in 2026.

Forwards price limited tightening

"Rather, ECB expectations look set to take centre stage in coming sessions, where forwards have lowered rate hike expectations since the beginning of the week."

"The first full hike is now discounted by September, and markets are seeing a 50% chance for another hike until year-end."

"In that regard, Lagarde's comments at tomorrow's press conference will be intriguing."

"We expect a relatively hawkish undertone to keep longer-term inflation expectations in check, while we doubt that the ECB will ultimately go through with a hike this year."

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