ECB: Markets are increasingly betting on no cuts until the end of the year

The forecasts of two of the largest international banks regarding European monetary policy were adjusted upwards after the European Central Bank's (ECB) decision to keep benchmark interest rates unchanged at its July meeting and the subsequent press conference, in which Christine Lagarde's tone was seen as moderately hawkish . Goldman Sachs and BNP Paribas no longer expect further cuts this year, revising year-end interest rates upwards from 1.75% to 2%.

Both banks acknowledged in notes published this Thursday that the likelihood of further interest rate cuts this year was low, thus moving their baseline scenario to a second half of the year without changes to benchmark rates. This comes after Lagarde described the economy as being "in a good position," signaling that the central bank is leaning more toward keeping everything unchanged.

“We believe the [cutting] cycle is over and the next move will be a hike in the fourth quarter of 2026,” reads a note from BNP Paribas, which also mentions the likelihood of a trade agreement between the US and EU as a source of greater stability and growth in the near future.

Goldman Sachs sees in Lagarde's comments indications that "the Board of Governors is likely to maintain rates unless the situation deteriorates significantly."

Market and analyst consensus before Thursday's meeting was for a further decline by the end of the year, after September, which would bring the benchmark interest rate to 1.75%. However, after Lagarde's speech, considered hawkish by some analysts, these forecasts were adjusted upwards.

The ECB president did not rule out further interest rate hikes if the impact of trade barriers proved to be inflationary, something the ECB still does not take for granted, and highlighted the strength that the European economy demonstrated in the first half of the year.

The bank's strategy, he explained, is to "wait and see," at a time when uncertainty continues to cloud medium-term prospects.

HSBC already had a baseline scenario of no further cuts until the end of the year, while JPMorgan is now targeting October, rather than September, for the last cut of the year.

Pantheon Macro also argues that "markets will need weak data in the coming months to consider a new 25 basis point (bp) cut," although that is precisely what the think-tank projects, especially in terms of prices.

ING bank also maintains expectations of a further reduction in September, but admits that “this conviction has weakened today [Thursday]”.