Commerzbank analysts note that recent dovish comments from key European Central Bank (ECB) officials have left forwards pricing only modest near-term moves but still more than two hikes for 2026. They argue there is room for ECB forwards to price out some tightening, especially as energy prices and scenario assumptions do not clearly justify additional hikes versus the ECB’s adverse projections.

Scope for forwards to price out hikes

"The massive verbal ECB intervention still resonates, while bullish steepening has morphed into bearish steepening as oil prices recovered. Following the bluntly dovish statements by heavyweight ECB members and sources, forwards are barely pricing 4bp higher rates at the end of the month, +22bp for June and +52bp for December."

"With more than two hikes discounted this year we see more scope for the market to price out hikes and the curve to bull-steepen. Earlier this week Lagarde said that “we are in between the baseline and adverse” scenarios, and we think that even the adverse scenario projections would make no clear case for hikes."

"Note that in contrast to what the ECB President said at the press conference, the ECB's adverse scenario assumes the rate path from the baseline scenario, not unchanged rates (at the end of the press conference Lagarde said the scenarios don’t factor in any monetary policy measures, but this was corrected in the official transcript). Euribor forwards are still above the forwards from the cut-off date on 11 March and energy futures are lower than the assumptions from the adverse scenario."

"With the June meeting still seven weeks away, a lot can happen. However, without a renewed crisis escalation that pushes oil prices sustainably above $100, we see better chances that the ECB will hike by less than forwards predict."

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