ECB & BOE Review
A recap and look into current pricing versus the qualitative information from the central bank meeting.
ECB: closer to a conditional pre-hike posture. The Governing Council held the deposit rate at 2.00%, but Lagarde said a hike was debated, risks had worsened, the ECB was “moving away” from baseline, and the next six weeks would be used to assess scenarios and second-round effects. That makes June genuinely live, especially if energy prices and supply disruption persist.
BoE: an active hold with a hawkish tail. Bank Rate stayed at 3.75%, with an 8–1 vote and Pill dissenting for a hike. The MPC is worried about second-round effects, but it is also putting meaningful weight on labour-market slack, softer activity, and tighter financial conditions. The BoE is therefore less cleanly pre-committed to June than the ECB.
My bias for Euribor pricing should be more robust to a near-term hawkish repricing than SONIA, because the ECB’s June reaction function now looks more explicitly event-conditional and live. SONIA still needs confirmation that the UK inflation shock is propagating into expectations/wages rather than being offset by weaker growth and labour slack.
In the following report I look into the details of what we said and how it at time is and isn’t not consistent with current short-end pricing. Along with a trade we will look to execute next week a 4 legged boxed position.
I have also now finish the STIR, BONDS, INFLATION and REAL tabs on the website for paid subs.
