Euro braces for ECB tone as ING flags 25bp hike across all scenarios

The European Central Bank's meeting today is expected to focus more on the language and projections than the rate decision itself, according to ING, which anticipates a 25 basis point hike in every scenario it considers. The gap between the bank's most dovish and most hawkish outcomes suggests meaningful two-way risk around the press conference, with EUR/USD ranging from 1.150 to 1.168 and the 10-year Bund yield moving between 3.30% and 3.45%. With the euro currently at 1.161 and the Bund yield at 3.40%, positioning looks fairly balanced, leaving room for a sharp move once the guidance tone becomes clear.

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ING considers the ECB's rate move today to be close to a formality, with the guidance tone being the key driver of market movements.

Summary:

• ING forecasts the ECB will deliver a 25 basis point hike today across all four scenarios it outlined, raising the depo rate from its current 2.25% level
• The bank's baseline assessment sees inflation risks tilted to the upside due to higher energy prices and potential second-round effects, while growth risks are skewed to the downside in the near term because of the conflict in the Middle East
• ING's own base case is a dovish hike, with inflation revised slightly higher but the overall risk balance broadly unchanged, growth projections improving despite persistent downside risks, and only a modest pushback against market pricing
• A more dovish scenario would involve the ECB signaling a prolonged pause and flagging concerns about bond markets, while a more hawkish one would point to clear hints of another hike in October and possibly beyond
• ING assigns different EUR/USD and 10-year Bund yield levels to each scenario, ranging from 1.150 and 3.30% in the very dovish case to 1.168 and 3.45% in the hawkish case
• The euro and Bund yield currently trade at 1.161 and 3.40%, closest to ING's neutral scenario, where inflation risks are seen rising again but growth risk is viewed as more balanced

ING expects the European Central Bank to raise its deposit rate by 25 basis points at today's meeting regardless of the tone of the accompanying guidance, based on a scenario framework the bank published before the decision. The current depo rate is 2.25%, with the ECB maintaining a data-dependent, meeting-by-meeting approach heading into the announcement.

The bank's note outlines four possible outcomes built around inflation, growth, and the tone of interest rate guidance. In the current stance, ING sees upside risks to inflation from higher energy prices and the possibility of second-round effects, while growth risks remain tilted to the downside in the near term because of the Middle East conflict.

At the dovish end, ING's very dovish scenario has the ECB delivering the expected hike while signaling a prolonged pause and expressing concern about bond market conditions, a combination the bank associates with a weaker euro near 1.150 and a 10-year Bund yield around 3.30%. ING's own base case sits just above that in a dovish hike scenario, where inflation projections are revised slightly higher without shifting the broader risk balance, growth forecasts improve while downside risks persist, and policymakers offer only a slight pushback against market pricing while keeping options open. That scenario is associated with EUR/USD near 1.157 and a Bund yield around 3.35%.

Moving toward the hawkish end, a neutral scenario would see the ECB acknowledge that the latest escalation in the region is adding fresh upside inflation risk, while treating growth risks as more balanced following improved projections, and signaling that another hike in the coming months remains possible. ING pairs that outcome with EUR/USD around 1.163 and a Bund yield near 3.40%, close to current levels. In its most hawkish scenario, ING sees the ECB acknowledging that the inflation impact may be larger than initially thought, requiring continued policy action, alongside a bigger-than-expected upward revision to growth projections, with clear hints of a further hike in October and potentially beyond. That outcome carries the highest levels in ING's framework, with EUR/USD near 1.168 and the Bund yield around 3.45%.

With the euro and Bund currently trading closest to ING's neutral case, the bank's framework suggests markets are already leaning toward the view that today's hike will come with a firmer tone rather than a dovish one, leaving scope for a larger reaction if the ECB's guidance ultimately lands closer to either extreme of ING's range.