Deutsche Bank pulls ECB rate cut forecast for 2025, eyes hike as next move

Major brokerages, including Deutsche Bank, Goldman Sachs, and BNP Paribas, are now withdrawing forecasts for further European Central Bank (ECB) rate cuts, with some predicting a hike by late 2026. This revised outlook stems from the recent US-EU trade deal, which reduces the impetus for ECB easing, alongside the central bank's recent decision to hold rates at 2% and its upbeat economic assessment. While money markets still price in some year-end easing, the consensus among top firms indicates a significant shift away from further accommodative policy.

Analysis

A significant hawkish shift in sell-side sentiment regarding the European Central Bank's monetary policy is solidifying, with Deutsche Bank joining Goldman Sachs and BNP Paribas in retracting forecasts for further interest rate cuts. This pivot is directly attributed to the new US-EU trade agreement, which, by imposing a 15% tariff and averting a more severe trade conflict, has diminished the rationale for additional monetary easing. The ECB's own recent actions, holding its policy rate at 2% after eight cuts since June 2024 and offering a modestly upbeat economic assessment, reinforce this revised outlook. Notably, a divergence now exists between this institutional consensus and current market pricing; money markets still imply a 55% probability of a final quarter-point rate cut by year-end. This disconnect, combined with some analysts now forecasting the next policy move to be a hike in late 2026, signals a period of heightened uncertainty and potential repricing for European assets.

Key Decisions for Investors

• Investors should reassess exposure to rate-sensitive European assets, as the anticipated tailwind from further ECB rate cuts is now unlikely to materialize, potentially impacting long-duration bonds and growth-oriented equities.
• Monitor the significant divergence between money market pricing, which still anticipates a 55% chance of a rate cut, and the hawkish consensus from major brokerages, as a convergence could trigger volatility in the EUR and related fixed-income instruments.
• Consider adjusting portfolio allocations based on the direct impact of the new 15% US-EU tariff, as this trade policy will create distinct winners and losers across European sectors, independent of the broader monetary policy outlook.