ECB Poised for October Pause, December Hike Expected Amid Widening French Spreads
| Pair | Now | Since publish |
|---|---|---|
| EURUSD | — | — |
- ECB expected to pause Oct, hike 25 bps in December.
- French bond tensions may limit ECB rate hike capacity.
- French fiscal risks could pressure EUR downwards.
- Commerzbank forecasts EUR/USD to reach 1.18 by 2027.
The European Central Bank is broadly expected to hold its key deposit rate at 2.50% at the upcoming Governing Council meeting on October 29. This anticipated pause is seen as a move to assess the impact of previous tightening, with many economists forecasting a final 25 basis point rate increase in December. This outlook contrasts with current market pricing, which suggests a more aggressive hiking path. A significant factor influencing the ECB’s policy tone is the widening of French-German 10-year government bond spreads, which indicates tightening financing conditions across the Euro area. A firm signal for a December hike could offer support to the Euro, while any scaling back of expectations might weigh on the currency.
Commerzbank economists, including Dr. Jörg Krämer, now specifically forecast a 25 basis point (bps) rate hike from the ECB in December. They also project the EUR/USD exchange rate to gradually increase from 1.12 to 1.18 by the end of 2027. Separately, Oanda-marketpulse highlights that French bond market tensions could constrain the European Central Bank’s capacity for further rate increases. Furthermore, Oanda-marketpulse indicates that French fiscal risks may exert downward pressure on the euro.