ECB Preview: ECB on Hold, but Not for Long

Danske Bank expects the ECB to keep rates unchanged at its July meeting, with the deposit rate held at 2.25%, as recent inflation data have come in softer than expected and oil prices have eased. The bank says ECB President Lagarde is likely to keep policy optionality open, without committing to the next move, while markets currently price in some chance of a September hike. Danske’s base case is still one final 25bp hike in September to 2.50%, followed by a cut back to 2.00% next year as growth weakens, the labour market softens, and inflation pressures gradually moderate. For EUR/USD, the message is moderately bearish for the euro in the near term if the ECB stays cautious, but the overall tone remains data-dependent and not strongly directional yet.