The ECB falls for it again, but the euro is unlikely to benefit

Faced with spiking energy prices and a slowing economy, policymakers have, in line with past ECB practice, put the emphasis on the inflation threat. If previous similar episodes are any guide, today’s hike (and any further ECB hikes at its next few meetings) are likely to be reversed before too long. In turn, that suggests to us that euro-zone government bond yields will fall back over the coming months, and that the euro will lose further ground to the US dollar – not least given that economic growth and underlying price pressures appear much stronger in the US than in Europe.