ECB Pricing Off Dovish Session Extremes

ECB-dated OIS has pulled back from dovish session extremes to last sit little changed to 3bp lower on the day, with the strip flattening.

• A cumulative ~3bp or so of tightening is still priced in over the next couple of meetings, with the market calling time on the tightening cycle.
• Beyond there, the first full 25bp cut still isn’t full priced until the end of the Bank’s July ’24 meeting, although June ’24 ECB-dated OIS nearly fully priced such a development earlier, before moderating to last show ~22.5bp of cuts from current rate levels.
• The combination of Eurozone and UK data, along with the bid in wider core global FI markets, had biased pricing in a dovish direction early on.
• Elsewhere, note that BBG sources flagged that “European Central Bank chief Christine Lagarde reckons the fight against inflation is going well but the lack of a regional deal on fiscal rules is turning into a headache.”
• “In a call on Monday, she told the presidents of the European Commission, the European Council and the Eurogroup that the euro-zone economy faces stagnation for the next few quarters and downside dangers, though risks to prices have become more balanced.”