Little reason for the ECB to surprise us with a hawkish stance – Commerzbank

FXStreet Insights Team FXStreet

Today's ECB decision will be the highlight of the trading week. After the market briefly doubted that there would be another rate cut today, such a move is now almost fully priced in, Commerzbank's FX analyst Michael Pfister notes.

Little reason for the ECB to surprise with a hawkish stance

"The ECB tends not to be swayed by such events and tends to change its stance slowly. In addition, the strong appreciation of the euro since the last rate decision and the risk of a flood of cheap Chinese goods into Europe reduce inflation risks somewhat. As a result, there is little reason for the ECB to surprise with a hawkish stance."

"Things are likely to get more exciting when it comes to guidance for the upcoming meetings. If ECB President Christine Lagarde hints at the following press conference that the Governing Council is now more convinced that it is best to wait and see how the trade war unfolds, the euro could regain some ground."

"However, I think such a scenario is unlikely. Lagarde will probably want to keep all options open, and the euro's behaviour will mainly depend on the wording used. However, given the factors that argue against a hawkish surprise, the risks are likely to be skewed towards a weaker euro."

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FXStreet Insights Team

FXStreet

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