Economists at Crédit Agricole discuss their expectations for the upcoming European Central Bank (ECB) meeting and how could impact the Euro.

Euro bulls to be selective

We expect a 25 bps rate hike along with indications from the ECB that it expects persisting inflation in the Eurozone and does not believe financial conditions have tightened enough to threaten growth, could spur further front-loading of rate hikes and support the Euro. However, we expect the Euro to consolidate mainly against currencies with dovish central banks or banks that have signaled the peak of their tightening cycle, such as the Japanese Yen and the New Zealand Dollar.

We highlight that the recent weakening of the Eurozone growth outlook, along with renewed concerns about China's economic future, could make Euro bulls selective about which Euro-crosses to buy.