ECB preview: Lagarde to 'strike dovish note'

Matthew Ryan, CFA Ebury

We see another 25-basis point interest rate cut from the ECB this week as practically a forgone conclusion.

The Governing Council has made clear that its priority for now is supporting activity in the common bloc, and recent data has remained consistent with an economy that is deep in the mire of stagnation.

We suspect that Lagarde will strike a dovish note on the growth outlook, despite the tentative signs of a rebound in recent PMI figures, and she may flag heightened uncertainty surrounding Trump’s trade restrictions.

The ECB is unlikely to provide much in the way of forward guidance, other than to hint that additional cuts will likely be required. Any remarks that attempt to guide the market towards a terminal level of interest rates will be very closely watched.

Financial markets are currently pricing in a terminal ECB rate of around 2%, so any indication of a more aggressive cutting cycle could lead to some weakness in the euro this week.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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