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ECB: Potential shift in market expectations – Westpac

ECB President Draghi this week raised potential for a shift in market expectations by stating that there has been a “vigorous pick up in underlying inflation”, points out Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Other comments were broadly unchanged from their policy meeting and this was later stressed by ECB Chief Economist Praet. However, interest in coming CPI releases has been increased. Could a lift in core CPI raise potential for guidance altering for rate to rise “as soon as” Q3 19, rather than being on hold “at least through the end of summer 2019″? Such a shift in perceptions could lift EUR from its post FOMC levels.”

“Italy’s budget had been a concern but the risk of a fiscal blowout has been greatly reduced in front of EU budget scrutiny next month.”

“Once again, EUR/USD rebounds are likely to be capped, but within a slightly wider 1.12-1.20 range, given the continued divergence in growth and policy stances.”

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