BofA Global Research expect the European Central Bank to leave its key interest rates on hold at its Thursday monetary policy meeting, which is forecast to be an "uneventful" one for the euro.
"With no large surprises in data and energy prices no far from the ECB's baseline forecasts, there is not a big enough sense of urgency to move policy rates now. Our strong conviction here is that, irrespective of whether the ECB hikes once or twice this year, policy rates at the end of 2027 will be 2% at most," analysts said in a Monday preview note. "Why? We still think inflation will prove a lot less persistent than feared. The shape of the current energy price shock is nowhere near that of 2022."
The research firm continues to anticipate the ECB to make one final 25 basis-point increase in rates in September as energy prices rose again recently amid renewed hostilities between Iran and the US.
"We still refrain from expressing these views with an outright long position in the front-end. Risks of further escalation in the US-Iran war, higher oil and/or gas prices, and a market positioning that is likely still long the EUR front-end all make us cautious," BofA added.