The European Central Bank’s monetary policy statement, to be published at 1.45 pm today, is expected not to change rates. It is expected to end Quantitative Easing, bond purchases of EUR 15 billion per month.
Further tightening is unlikely, as the Eurozone outlook is distressed. With Brexit uncertainties, the Italian budget battle and an upcoming French budget deficit, the central bank will downplay these risks and maintain forward guidance unchanged. (Italy’s PM Giuseppe Conte and European Commission President Jean-Claude Juncker finally came up with a government budget deficit of 2.04% instead of prior 2.40%.)
The ECB will have to reduce the monetary tightening sometime, most certainly as of next year. The loss of momentum could force the ECB to postpone its first rate hike to 2020, as the world economic outlook is not in good shape.
We expect a positive view from ECB Chairman Draghi’s speech at 2.30 pm. Currently trading at 1.1385, EUR/USD is expected to weaken slightly following Draghi’s speech.
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By Vincent Mivelaz