ECB preview: One alone is like none at all. ECB preview: One alone is like none at all. ECB preview: One alone is like none at all.

ECB preview: One alone is like none at all.

Althea Spinozzi

Head of Fixed Income Strategy


  • The ECB is anticipated to deliver a 25bp rate cut at the June meeting, according to recent speeches by governing council members.
  • We expect the ECB to maintain a data-dependent approach to future policy rate changes, which could sustain rate market volatility and hinder the development of a bond bull market.
  • It may be still too early to increase duration exposure in fixed income. As the economy recovers and inflation remains above central banks' targets, the yield curve is likely to bear-steepen.
  • EUR OIS curve has shifted hawkish and market expects only two ECB rate cuts this year. This could mean more sensitivity for EUR in case President Lagarde signals more rate cuts. EURUSD could break below 1.0750 in that case. 

ECB policymakers have been gearing up for a potential interest rate cut at next week’s ECB meeting for weeks now. Although inflation hasn't yet hit the central bank’s 2% target, they seem to think there's an opportunity to slightly ease monetary policy while still maintaining overall restrictiveness. However, with persistent inflation in the US and geopolitical tensions driving up commodity prices, markets are keen to gauge just how much the ECB is willing to loosen its stance this year as markets remain wary of a policy mistake. Those fears are likely to force the ECB to keep a data-dependent approach going forward.

Macroeconomic projections unlikely to shift market expectations.

Since the start of the year, market expectations have adjusted significantly, removing 100 basis points (equivalent to four rate cuts). Currently, markets are predicting two and a half rate cuts by December, with the second cut expected in October. This is one less rate cut than what markets predicted just before the March ECB meeting.

More interesting is the observation that, while markets anticipate the ECB will continue cutting rates through September 2025, they don't foresee a return to pre-COVID monetary policies. Instead, they expect rates to bottom out around 2.75%. That’s a strike contrast to the negative interest policies the eurozone has been accustomed to from 2024 until today, implying that a much-anticipated bond bull rally in the long part of the yield curve might not materialize anytime soon.

The upcoming June staff projections aren't expected to significantly alter the monetary policy narrative. However, they might indicate a slight improvement in short-term growth and slightly higher near-term inflation forecasts. This adjustment follows the technical assumptions from the March meeting, which anticipated a constant exchange rate and a drop in oil prices to $75 per barrel.  Such forecasts confirm the point that interest rates are likely to remain above pre-COVID averages for longer.

ECB's victory lap doesn't mean inflation is a problem of the past.

Despite a significant drop from its 2022 peak, inflation remains elevated and well above the 2% target at both headline and core levels. With economic activity rebounding and persistent wage pressures at 4.7%, it's likely that inflation will stay above target throughout the year.

It's important to remember that since the COVID-19 pandemic, the US CPI has been a reliable leading indicator for euro-area inflation. Now, as the US shows signs of a possible rebound, it signals that the fight against inflation may not be over even in Europe. 

Source: Bloomberg and Saxo.

Still Too Early to Increase Duration Exposure

Unfortunately, it may still not be the time to invest in ultra-long maturities. The reason is straightforward: the economy is recovering while inflation remains above central banks' targets, preventing the ECB and others from aggressively cutting interest rates.

Currently, three-month Euribor future contracts reflect market expectations for the ECB to cut rates to 2.63% by September 2027. Although the spread between 10-year Bunds and the ECB deposit rate has been negative since 2022, 10-year Bunds have historically provided a pickup over the ECB deposit rate. As the yield curve normalizes, 10-year Bunds are expected to offer a yield above the ECB rate, establishing a floor around 2.63%, suggesting that 10-year Bunds may continue to rise towards 3%.

The outlook is even more bearish for longer European sovereigns. For instance, 30-year Bunds, currently trading at 2.79%, are expected to provide an increasing pickup over 10-year Bunds as the yield curve steepens. Historically, 30-year Bunds have paid an average of 57 basis points over 10-year Bunds since the mid-'90s, setting a floor around 3.2% for this tenor.

Therefore, we continue to favor the front part of the yield curve and remain cautious about duration as yield curve normalization occurs amid a strong economy and above-target inflation pressures.

FX: How Far Can the Divergence Trade Go?

EURUSD started the year around highs of 1.10, when both the Fed and the ECB were expected to cut rates by six times or so.

However, despite the pushback in easing expectations for both US and Eurozone, EURUSD is down to 1.08. This is because the ECB is taking the lead in easing policy this time around, and policymakers have been vocal about not waiting for the Fed to make the first move.

The path from here will depend on ECB comments out of the June meeting. The market is betting on a ‘hawkish cut’ given that policymakers are likely to take a data-dependent approach rather than pre-commit to further rate cuts. However, much of those hawkish signals are priced in the EUR OIS curve with the next move from the ECB only see in October. The Fed’s next move could be more critical for the ECB after the June meeting, as policy divergence is unlikely to go too far.

Let us consider the impact on EUR by considering different ECB meeting outcome scenarios:

  • If ECB remains data dependent
    • EURUSD could remain range-bound and dollar-dependent, trading between 1.0750-1.090
  • If ECB signals it will continue to remove restriction, or projects more than 2 rate cuts this year (market is pricing two ECB rate cuts in 2024)
    • EURUSD could break below 1.0750
    • EURGBP could break below 0.85
  • If ECB signals it will be slow to remove further restriction
    • EURUSD could rise back towards 1.0850
    • EURCHF and EURJPY could gain

Other recent Fixed Income articles:

28-May Insights into this week's US Treasury auctions: 2-, 5-, and 7-year tenors overview.
22-May UK April’s Consumer Prices: Markets Abandon Hopes for a Linear Disinflation Path.
17-May Strong trade-weighted EUR gives ECB green light to cut rates, but bond bull rally unlikely
14-May UK labor data and Huw Pill's comments are not enough for a bond bull rally
08-May Bank of England preview: Rate cuts in mind, but patience required.
06-May Insights into this week's US Treasury refunding: 3-, 10-, and 30-year overview
02-May FOMC Meeting Takeaways: Why Inflation Risk Might Come to Bite the Fed
30-Apr FOMC preview: challenging the March dot plot.
29-Apr Bond Markets: the week ahead
25-Apr A tactical guide to the upcoming quarterly refunding announcement for bond and stock markets
22-Apr Analyzing market impacts: insights into the upcoming 5-year and 7-year US Treasury auctions.
18-Apr Italian BTPs are more attractive than German Schatz in today's macroeconomic context
16-Apr QT Tapering Looms Despite Macroeconomic Conditions: Fear of Liquidity Squeeze Drives Policy
08-Apr ECB preview: data-driven until June, Fed-dependent thereafter.
03-Apr Fixed income: Keep calm, seize the moment.
21-Mar FOMC bond takeaway: beware of ultra-long duration.
18-Mar Bank of England Preview: slight dovish shift in the MPC amid disinflationary trends.
18-Mar FOMC Preview: dot plot and quantitative tightening in focus.
12-Mar US Treasury auctions on the back of the US CPI might offer critical insights to investors.
07-Mar The Debt Management Office's Gilts Sales Matter More Than The Spring Budget.
05-Mar "Quantitative Tightening" or "Operation Twist" is coming up. What are the implications for bonds?
01-Mar The bond weekly wrap: slower than expected disinflation creates a floor for bond yields.
29-Feb ECB preview: European sovereign bond yields are likely to remain rangebound until the first rate cut.
27-Feb Defense bonds: risks and opportunities amid an uncertain geopolitical and macroeconomic environment.
23-Feb Two-year US Treasury notes offer an appealing entry point.
21-Feb Four reasons why the ECB keeps calm and cuts later.
14 Feb Higher CPI shows that rates volatility will remain elevated.
12 Feb Ultra-long sovereign issuance draws buy-the-dip demand but stakes are high.
06 Feb Technical Update - US 10-year Treasury yields resuming uptrend? US Treasury and Euro Bund futures testing key supports
05 Feb  The upcoming 30-year US Treasury auction might rattle markets
30 Jan BOE preview: BoE hold unlikely to last as inflation plummets
29 Jan FOMC preview: the Fed might be on hold, but easing is inevitable.
26 Jan The ECB holds rates: is the bond rally sustainable?
18 Jan The most infamous bond trade: the Austria century bond.
16 Jan European sovereigns: inflation, stagnation and the bumpy road to rate cuts in 2024.
10 Jan US Treasuries: where do we go from here?
09 Jan Quarterly Outlook: bonds on everybody’s lips.


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.