Eurozone money markets are quick to pare back pricing of ECB rate hike in June. Now, the difference between Eonia and forward Eonia rates dated for June 2019 ECB meeting stands at 3 bps. That’s half of 6bps last week and 1/3 of 9bps earlier this month. The pricing indicates around 30% chance of a 10 bps hike in the -0.4% deposit rate by June next year. Though, it’s still generally expected that ECB would end the asset purchase program this year, as it has done its job already.
While Italy is definitely a concern for ECB policy makers, it should be reminded that they are not totally certain on the reasons for Q1’s slow down yet. And how well the economy rebounds in Q2 is a question to be answered. Based on current vulnerable market sentiments, Thursday’s Eurozone May CPI flash will be eve more crucial to Euro.
