Market Has Moved Quite Rapidly to Price an Aggressive Hike Cycle From the ECB

  • Jesús Cabra Guisasola, Senior Associate at Validus Risk Management

  • 28.04.2022 02:30 pm
  • #RiskManagement

“German inflation accelerated to the fastest pace since early 90s with the headline jumping to 7.8% (vs 7.6% expected).

“In Spain, after almost posting double digits numbers in March, the headline came lower in April (8.4% vs 9.8%). However, the core inflation jumped to 4.4%, and coming in a percentage point higher compared to March, which is the highest since 1995.

“After coming out from the French election and thinking that Macron’s victory over Le Pen would give some relief to the EUR, we continue seeing the currency under pressure, with EURUSD trading below the $1.05 mark on the back of further escalation between the EU and Russia around energy, and concerns among investors around the prospect of the Eurozone.

“These inflation figures will put further pressure on the ECB to exit stimulus and start hiking interest rates to mitigate historical inflation prints. Market has moved quite rapidly to price an aggressive hike cycle from the ECB which could start in July with 25bps increase and with the terminal rate back to positive territory by Dec 2022 (0.2%).”

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