Societe Generale strategists view a third ECB rate hike to 2.75% by February as premature unless inflation and growth accelerate.
European bond yields have surged about 30 basis points over the past four weeks, with 2-year and 10-year yields reflecting a sharp selloff. Strategists argue the move may be overdone, particularly as markets price in a second ECB rate hike in September as a near-certainty.
A third hike to 2.75% by February is seen as aggressive unless Eurozone growth strengthens and second-round inflation effects materialize. Current pricing places policy in restrictive territory, which could support EUR/USD if the Fed holds rates steady and oil prices ease.
Without clearer signs of economic acceleration, bonds and swaps may be due for a pullback after 2-year yields spiked to 2.83%. The absence of stronger data leaves the near-term outlook for yields uncertain.