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Analysts at Nordea Markets suggest that the ECB meeting in a few weeks’ time looks increasingly interesting and while their base case is that ECB will refrain from taking any policy actions in June, the updated staff projections could prove unusually interesting.

Key Quotes

“While the rising energy prices will start to surface in EUR headline inflation as early as next week,  also the FX developments since the latest projection update in March argue for a higher HICP inflation path in the staff projections  (currently as much as 0.25% for 2018 according to the ECB’s own methodology). This leaves a potential difficult communication task ahead for the ECB, as they likely want to sound dovish despite a higher inflation forecast.”

“We see elevated risks that markets will put too much emphasis on rising headline inflation in the Euro area over the next months and as  the market pricing of the ECB has almost collapsed recently, there is a risk that the market will reprice the ECB hawkishly from the current levels.  If a hawkish re-pricing were to arise into the summer, we would prefer to fade such a move.”

“Both core inflation and growth momentum are worrying the ECB  and this is maybe also what the EUR/USD currently prices in.”