Bloomberg’s latest poll of European Central Bank forecasters shows expectations have turned markedly more hawkish, ING's FX analyst Francesco Pesole notes.

ECB meetings carry some downside risks for the euro

"Consensus has cemented around the cutting cycle ending at over 2%, and expectations for rate hikes in the second half of next year have risen. Markets have continued to price out rate cuts, with only 8bp left in the December contract. So far, data has vindicated this view, but the debate on another cut may be more heated than expected, which means ECB meetings and subsequent off-meeting communication carry some downside risks for the euro."

"However, for EUR/USD, it’s still almost all about the Fed and US data, and we expect a return above 1.170. French politics – alongside any developments in Ukraine – remains the other important theme for the euro in the coming days. Expectations are for the French parliament to vote down Prime Minister Francois Bayrou on Monday, with a realistic scenario afterwards for President Emmanuel Macron choosing a new centrist or centre-right prime minister to deliver a watered-down fiscal consolidation package."

"Political uncertainty is set to remain elevated through this process, but we aren’t sure that’s enough to trigger any uncontrolled OAT swings and, by extension, significant pressure on the euro as the no-confidence outcome appears largely priced in."