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TD Securities strategist Pooja Kumra highlights that the European Central Bank (ECB) has adopted a more hawkish stance amid resurfacing energy-driven inflation risks. While officials acknowledge renewed pressures from energy prices, their baseline forecast remains for a single interest rate hike by late 2026. This cautious approach reflects the ECB’s balancing act between addressing inflation and avoiding excessive tightening that could harm economic recovery. For forex markets, the ECB’s conditional hawkishness could support the euro against majors like the USD, particularly if the Federal Reserve maintains dovish signals. Traders should monitor upcoming inflation data and ECB speeches for clues on timing. However, the limited scope of hikes (only one in 2026) suggests the ECB is unlikely to outpace other central banks in tightening, which may cap the euro’s upside. The ECB’s policy path will have indirect implications for Gulf investors, especially those with exposure to European equities or EUR-denominated assets. A stronger euro could affect Middle East trade balances and debt servicing costs. Key watchpoints include Q4 2026 inflation prints and ECB President Lagarde’s communication on policy normalization.
