ECB Hike Odds Skyrocket Amid Eurozone Inflation Data Releases
As European Central Bank (ECB) expectations loom large, upcoming inflation data in Germany and the Eurozone will be crucial for determining the path forward. According to Geoff Yu at BNY, the odds are stacked against doves as the week ahead sees key releases. Markets have already priced a near-certain September hike with a 97% chance of an increase, as indicated by OIS markets.
Yu acknowledges that upside surprises in France and Spain have validated hawkish ECB messaging, but cautions that services inflation is softening, and second-round wage effects remain unclear. Despite this, stronger headline readings could reinforce the hawks' stance and challenge Europe's fragile cyclical recovery. The ECB is likely intent on pushing for additional preemptive action.
The upcoming data releases will be crucial in determining the ECB's decision. German CPI aside, Eurozone flash CPI is out on Tuesday, where a rise in headline inflation would reinforce pressure on ECB rate expectations and validate Executive Board Member Isabel Schnabel's extremely hawkish messaging.