We still need to hear from Mario Draghi, but the initial assessment of the early statement is that the ECB may have made some tiny, tentative steps towards policy normalisation by dropping a reference that it could cut interest rates further.
We still need to see the ECB staff forecasts for growth and inflation, and there is a big expectation that the ECB will sharply cut its inflation forecast to the 1.5% level, way below the ECB’s 2% target rate.
As it stands, it makes sense that the euro is at fresh lows of the day even though the ECB seems to have adjusted its forward guidance and ruled out the prospect of further rate cuts. This message has been neutralised by the ECB’s reference that it could continue the APP beyond its current end date if the inflation outlook doesn’t improve in the coming months.
Overall, we need to hear from Draghi to gauge just how hawkish this shift in the forward guidance actually is, and how worried the ECB is about inflation.
Until then we could see euro trade to the downside, the current range in EUR/USD today is: 1.1217 – 1.1269.
European stocks have also fallen, although Deutsche Bank (DE:DBKGn) climbed on the decision as negative deposit rates have been very bad for bank profits in Europe.
All eyes are now on Draghi’s press conference at the bottom of this hour.
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