Economists at Nomura state that the European Central Bank will implement three more interest rate hikes within the current cycle. They believe the ECB's hawkish stance will strengthen the euro against the British pound in the coming months.
Following the ECB's expected 25 basis point rate increase on Thursday, Nomura analysts Andrzej Szczepaniak, George Buckley, Josie Anderson, and David Seif noted that the new baseline projections released by officials, led by President Christine Lagarde, were "more hawkish than we had anticipated."
"We view the ECB's hawkish projections as justified and expect them to result in a more restrictive monetary policy than we previously forecasted."
The Nomura economists now forecast that the ECB will raise rates again in September, December, and March of next year, bringing the deposit rate to 3%.
The Nomura team added, "We believe the euro has room to outperform many other currencies as the ECB demonstrates a more hawkish reaction function to upside price pressures."
Given the persistent political and fiscal risks in the UK market, they reiterated their strategy of holding the euro against the pound.
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