Another upside inflation surprise reinforces speculation over a 75 bps hike by the European Central Bank (ECB) at its next week's meeting. Nonetheless, economists at MUFG Bank do not expect the euro to profit from that front-loaded tightening.

Eurozone recession risks remain elevated

“Market participants are currently pricing in 71 bps of hikes by the 8th September policy meeting, and for the ECB to keep raising rates up to 1.50% by year-end.” 

“Market expectations for more front-loaded tightening have been encouraged by hawkish comments from ECB policymakers since Jackson Hole, and the release yesterday of another upside inflation surprise in the eurozone.”

“We are not convinced that front-loaded tightening will support a sustainable rebound for the euro while eurozone recession risks remain elevated.”