ECB Hike Imminent, but Lagarde to Keep Markets Guessing

As the European Central Bank (ECB) prepares to announce its latest interest rate decision, investors are bracing themselves for another hike. Goldman Sachs expects the ECB to raise rates by another 25 basis points next week, a move already fully priced in by markets.

The complication lies in energy prices, which have pushed the medium-term inflation profile back in the wrong direction. Despite growth proving slightly more resilient than expected and underlying inflation softening, the renewed rise in gas prices is a concern for policymakers.

Goldman still believes that September is likely to mark the end of the tightening cycle, but the hurdle for another rate hike in December has fallen significantly. The real event risk, therefore, lies not in the hike itself but in how hard ECB President Christine Lagarde pushes against a market already pricing close to four hikes.