The euro needs growth expectations to shift more than it needs higher rates – SocGen

Markets expect a 75 bps hike from the European Central Bank (ECB) today but the focus will be on communication. Nevertheless, the euro requires concerns about growth to ease in order to strengthen, Kit Juckes, Chief Global FX Strategist at Société Générale, reports.

75 bps is priced in, forward guidance is everything

“A 75 bps hike is priced in, followed by at least 50 bps more in December. Warmer weather is helping, the market doesn’t expect QT to start until rates are significantly higher, but does expect to see the TLTRO being run down.” 

“As important as anything else will be the tone of Christine Lagarde’s comments, and there, a clear focus on fighting inflation probably keeps the hawkish message intact. That suggests we won’t get anything negative for the euro from the meeting, a least. A stronger currency though probably requires pessimism about growth to wane.”

“The Bloomberg consensus for Eurozone 2023 GDP growth has fallen from 2.5% to -0.1% since the start of March, during which time the consensus for US GDP has fallen from 2.5% to 0.4%.” 

See – ECB Preview: Forecasts from 15 major banks, no obstacles to a 75 bps hike