EUR: ECB Should Express Its Concerns At ECB Meeting But Not Expecting Much Impact on EUR – BofA

The ECB holds its monthly policy meeting later on Wednesday. What can we expect from the meeting?

Here is their view, courtesy of eFXdata:

Bank of America Global Research discusses its expectations for today’s ECB policy meeting.  

“The ECB should  express its concerns  in this week’s meeting, in our view.  The COVID-19  situation is fragile,  and the cold weather season has barely begun. It is unclear if recent restrictions are enough.  Eurozone core inflation is likely to weaken  further,  in our view,  from already historic lows.  Brexit remains unresolved and the recovery fund could be questioned  and delayed. We could do with certainty that more ECB support is coming in December. “Committees being tasked” would be a  very  clear signal, but maybe that is expecting too much  this week,” BofA notes  

“In this context,  we do  not  expect much from the ECB this week. A signal for PEPP expansion in December should  already  be mostly priced in, with risks for disappointment.  Any indication for open-ended and inflation linked-PEPP would be a market  surprise,  in our view, but again, the communication for  such a  move would be important to determine the EUR impact.  In any case, we believe that in the short term the EUR depends more on global–COVID–and US–elections–factors, than the ECB.  The EUR is not currently overvalued  in our view–our EURUSD equilibrium estimate is 1.23–but the recent collapse in Eurozone inflation would justify a weaker  EUR,  in our view,’ BofA adds.  

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