Economists in the Bloomberg survey are almost evenly split between a pause and +25 bps by the ECB on Thursday. No change in rates would have to be accompanied by indication of faster QT (steeper long end of the Bund curve, higher real rates) to avoid a new round of selling EUR/USD and potentially broader EUR/G10.

The record of past ECB meetings when new staff forecasts are published is mixed for EUR/USD with gains and losses evenly split. There is a stronger bias for gains in EUR/JPY and EUR/GBP.

A 25 bps increase instead of a pause this Thursday would surprise investors considering current pricing but would probably not turn the tide for EUR/USD in a meaningful or durable fashion. Growth differentials on both sides of the Atlantic and the gap in real yields handicap the outlook for the Euro. 

We think further depreciation towards 1.05 is possible unless markets pare back expectations again of the Fed raising rates beyond 5.50%. 

A steepening of the euro bond curve and rise in real yields could be achieved by speeding up QT, but our house view is that this will not be discussed until December. A discussion this week is a tail risk and could give the Euro a lift.