Hawkish Comments from ECB

Hawkish comments from ECB President Jean-Claude Trichet at the regular ECB press-conference has now prompted many investment banks to revise their end of year ECB rate forecasts to 3.50% vs 3.25% previous. Indeed, this is now fully reflected in the euribor strip, where probability of a 25bps rate hike at the August 3 Governing Council meeting has now increased to 90%. Economists are also expecting a 25bps rate hike at the Oct 5 meeting in Paris and a similar move on Dec 7 meeting in Frankfurt, thus taking year-end Refi rate to 3.50%.