European Central Bank (ECB) hike bets may get another push this week with the release of Eurozone CPI. Economists at Scotiabank believe that a strong beat could prompt markets to double down on a likely incorrect call, leaving the euro at risk of falling to 1.08.
Lot of room for ECB disappointment
“The surge in inflation will prompt the hawks in the council to push for rate hikes this year, but the bank is unlikely to dramatically change its tune at its mid-April meeting given continued downside risks to the eurozone economy from high commodity prices.”
“We remain skeptical that the EUR can maintain gains ahead of (or following) the ECB as market expectations of two hikes this year are already the maximum by which the bank would hike – and there remains a lot of room for disappointment. Hawkish Fed expectations seem less likely to be disappointed.”
“We see the EUR/USD weakening toward 1.08 in the coming months, with the move probably waiting until after the ECB’s decision.”