ECB Rate Hike Expected to Boost Euro Despite Higher Energy Prices

According to Brown Brothers Harriman's (BBH) Elias Haddad, the European Central Bank (ECB) is set to raise interest rates by another 25 bps this week, bringing the policy rate to 2.50%. This decision is expected due to above-target Eurozone inflation and a firmer growth outlook.

Haddad sees the swaps curve fully pricing in ECB rates at 3.00% over twelve months. He believes the macro backdrop supports the Euro as policy moves towards the upper neutral range of the ECB's 1.75%-3.00% target.

The ECB will also publish its September macroeconomic projections, which are not expected to show material changes to the Eurozone GDP and inflation forecasts. However, improving leading economic indicators and slightly softer core inflation are offset by higher energy prices.