ECB Seen Delivering Final Hike in December Amid Market Pricing Skepticism

The European Central Bank (ECB) is expected to continue a measured tightening cycle, delivering a final 25bp hike in December and taking the deposit rate to 2.75%, according to TD Securities' Macro Research team.

This would be mildly restrictive, as policymakers focus on returning rates to a neutral level referenced by several ECB officials at 2.5%.

The OIS markets currently price around 31bp of ECB tightening by end-2026 and close to 100bp cumulatively by end-2027, taking the terminal rate to nearly 3.5%, well above the neutral rate.

TD Securities maintains a bullish EUR/USD year-end forecast, arguing that current market pricing overstates future tightening and that policymakers may soon push back against expectations.