Most traders are looking forward to the next ECB meeting in October. Usually, the regulator's actions are quite predictable. However, this time, it is keeping the intrigue and does not give any clues about the future of interest rates. At present, there are sound reasons to assume that the European Central Bank will take a pause in monetary policy tightening.
In fact, analysts have mixed views on the situation. Some suppose that the ECB will stick to its hawkish stance and raise the key rate once more. Such an action could be explained by the necessity to cap inflation. Other analysts are sure that it is high time to pause the tightening cycle and keep the key rate at the current level. According to Bloomberg, respondents' opinions were split almost equally between those who expect the 10th consecutive rate hike and those who expect a "hawkish pause" before the benchmark rate reaches 4% in October.
"Respondents see the ECB confirming by December that borrowing costs are at the peak. They’re penciling in a first rate cut of three in 2024 for March—well before ECB officials are themselves suggesting reductions may start," Bloomberg wrote.
Notably, economists' expectations are not totally similar to financial-market bets. "Traders price a 40% chance of a move next week and see a 70% probability of one materializing by year-end." It is highly possible that "the ECB will have to balance between a dovish hike or a hawkish pause—not an easy one," Carsten Brzeski, ING's head of macro, said. "A pause of the hiking cycle would be the best to do," he added.
