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Eurozone Market Update
As expected, the European Central Bank (ECB) left its monetary policy unchanged at April’s meeting. The bank reiterated that net asset purchases should conclude in the third quarter, and rates will likely rise ‘sometime after’ that. The risk has intensified that the ECB will increase its inflation forecast with widespread price increases and inflation expectations above its target (see Chart of the Month). Since the meeting, more hawkish statements have opened the door for a July hike once the Asset Purchase Programme is phased out. Even ECB President Lagarde says there is a “strong likelihood” the bank will raise rates before the end of the year. The market is now pricing 75 basis points (bps) of hikes by the end of the year, with close to 40 bps by September.
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