ECB set to hold at 2.50% as Morgan Stanley sees December as natural moment for next hike

With a hold almost fully priced, the euro’s reaction will turn on whether Lagarde validates December hike expectations or keeps full optionality, and a noncommittal message could see some tightening priced out and weigh on the single currency. The Fed decision a day earlier sets the backdrop for EUR/USD, so a hawkish Fed followed by a cautious ECB would be the most euro-negative combination. Higher oil linked to the Middle East conflict remains the main upside risk to eurozone inflation and to hike pricing. French government bonds are exposed to any sign that the ECB sees the recent rise in yields as a concern rather than welcome tightening, and Friday’s flash inflation and GDP data could quickly reprice December either way.