The market’s take on a future ECB pivot
In a split decision, the European Central Bank lifted its key interest rate by a quarter point to 4 percent yesterday, the highest level since the institution was created in the 1990s. The ECB also cut growth projections while lifting inflation forecasts. However, analysts and markets interpreted the ECB’s guidance as suggesting this “dovish hike” is probably the last one, and the euro fell.
To quote the central bank directly: “interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”
What is the futures market telling us today?
This chart looks at euro short-term rate futures as a guide to market expectations for further ECB rate moves. Indeed, there are few bets on another rate hike in the remainder of 2023. And the chart also implies that the central bank will pivot to its first rate cut in the spring.
This chart has moved substantially over the past day. Markets had expected one more hike in 2023, but weren’t sure when it would come. Macrobond users can click through to the chart and toggle the date to see how it looked before the ECB’s meeting.