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Nomura analysts predict the European Central Bank (ECB) will initiate a recalibration phase at its 11 June meeting by raising the deposit rate by 25 basis points to 2.25%. This follows a series of aggressive rate hikes in 2022 and 2023 aimed at curbing inflation. The move signals a shift from tightening to a more measured approach, balancing inflation control with growth concerns.
This recalibration could stabilize EUR/USD and European equities, as markets anticipate reduced rate volatility. Traders should monitor ECB communication for clues on future policy direction, particularly regarding inflation data and economic indicators. A slower pace of hikes may also impact bond yields and cross-currency carry trades.
The ECB's decision will influence global capital flows, especially for Gulf investors with exposure to European assets. Key watchpoints include upcoming inflation reports, labor market data, and potential tapering timelines. A 25bp hike aligns with market expectations, but deviations could trigger short-term volatility.
