Policymakers signal a potential 25 bps move next month if June inflation exceeds expectations, though September remains the base case.
The European Central Bank may consider a 25 bps rate hike in July if June inflation data delivers a negative upside surprise, according to sources. Recent declines in oil prices have eased pressure for immediate action, but policymakers remain cautious ahead of tomorrow’s Eurozone inflation release.
Markets currently price a 34% chance of a July hike, rising to nearly 70% by September. A full 25 bps increase is fully priced for October, with around 30 bps of tightening expected by year-end. May’s headline inflation stood at 3.2%, and a drop in line with forecasts would favor a September move.
Today’s inflation reports from Germany, France, and Italy will offer early clues for the broader Eurozone estimate. Traders are closely monitoring the data for signals on the ECB’s next steps.