ECB Expected to Hold Off Until September for Final Rate Hike, Poll Shows

ECB Poised to Skip June, Hike in September

A majority of economists polled by Reuters expect the European Central Bank to hold interest rates steady at its June meeting and then deliver one final 25-basis-point hike in September. The move would bring the deposit rate to 3.75%, a level seen as the peak for the current tightening cycle.

The poll, conducted May 22–24, shows 60% of respondents (33 of 55) predicting a pause in June, followed by a hike in September. This marks a shift from earlier expectations of a June move. The ECB has raised rates by 375 bps since July 2022 to combat inflation, which remains above the 2% target.

Why the ECB Is Taking a Breather

Sticky Inflation vs. Weak Growth

Eurozone inflation eased to 7.0% in April from 6.9% in March, but core inflation (excluding food and energy) dipped only marginally to 5.6%. The ECB is caught between persistent price pressures and a slowing economy. GDP grew just 0.1% in Q1, and the manufacturing sector remains in contraction territory.

Divergent Views Among Policymakers

Hawkish members like Bundesbank President Joachim Nagel have called for further tightening, while doves such as Bank of France Governor François Villeroy de Galhau advocate a pause. The compromise appears to be a hold in June, followed by a final hike in September, giving the ECB time to assess incoming data.

Key Levels to Watch

EUR/USD has been range-bound between 1.0750 and 1.1100, with the pair sensitive to shifting rate expectations. A hawkish surprise (a June hike) could push the euro above 1.12, while a dovish delay might send it toward 1.06. Traders can monitor EUR/USD price in real time. Meanwhile, the German 10-year Bund yield, currently around 2.4%, could rise if the September hike materializes.

What This Means for Traders

The ECB's wait-and-see approach suggests that the peak in rates is near but not yet confirmed. Traders should watch for any shift in language from ECB President Christine Lagarde at the June press conference. If she signals a September hike is likely, the euro could strengthen. Conversely, if she downplays further tightening, the euro may weaken.

For bond traders, the yield curve could steepen if the ECB pauses, as short-term rates stabilize while long-term yields adjust to a slower growth outlook. The VNIX technical indicators can help identify trend changes in fixed income markets.

Ultimately, the ECB's path depends on incoming data—particularly wage growth and services inflation. A surprise upside in these could force an earlier hike. Discuss scenarios with other traders in the signal rooms.