The European Central Bank (ECB) is set to undershoot median rate hike expectations. Furthermore, slower global demand will weigh on growth in the region, pressuring the euro in the fourth quarter, according to economists at CIBC Capital Markets.

Trade unlikely to benefit the eurozone until well into 2023

“The ECB appears intent on taking the deposit rate towards 2.00% into year-end. A cumulative tightening of 125 bps will leave rate spreads still substantially in the favour of the US.”

“Euro real economy headwinds underline that the ECB looks set to undershoot median rate hike expectations. Moreover, weakness in the global economy will mean that trade is unlikely to benefit the eurozone until well into 2023.” 

“While eurozone energy headwinds remain a concern, we also expect markets to remain mindful of the risk of widening BTP-Bund spreads.”