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The European Central Bank (ECB) is set to leave its policy unchanged in January but may paint a gloomy picture. As we get closer to the release time, here are the forecasts by the economists and researchers of eight major banks.

According to FXStreet’s Analyst Yohay Elam, unless the bank threatens lower rates, EUR/USD may resume its rises, based on dollar weakness.


“We expect the monetary policy of the ECB to remain unchanged on the occasion of the January meeting. Inflation can be expected to pick up in the coming months, chiefly on account of technical factors. We expect the ECB to signal it will look beyond this upturn and only reconsider the orientation of its monetary policy when there is evidence of a real increase in underlying inflationary pressures. Our expectations are that Christine Lagarde will limit herself to very general comments, stressing that the ECB stands ready to adjust its toolbox to avoid an ‘unjustified’ tightening of financial conditions.”


“No changes to monetary policy are expected so all focus will be on Lagarde’s comments. Partly in response to the pressure from the hawks, the ECB will try to scale down the pace of its bond purchases. Recent market moves support the credibility of the ECB bond purchases in keeping yields and spreads low. The ECB’s concerns about FX moves are unlikely to have increased materially since December. Risks are tilted towards slightly higher yields and spreads as an immediate response.”


“This month’s ECB meeting should be fairly uneventful, with all the big policy decisions having already been made at the December meeting. Judging from Lagarde’s recent comments, we look for a fairly upbeat tone, with more focus on the positive medium-term developments, like the vaccine deployment in particular, and less focus on the near-term downside risks from the extended lockdown.

Danske Bank

“The ECB meeting is set to be a fairly uneventful one, which we largely expect to be a stock-taking meeting with no new policy signals. As the Euro area economy is still in lockdown and could be all through Q1, it is likely the services sector will continue to drag economic sentiment lower but with the rollout of the vaccines and improvement in the weather conditions, we believe economic activity is set to pick up. We expect the press conference to convey this ray of optimism. The recent recalibration of the policy instruments from the ECB in December has been well absorbed by markets, which means the ECB has no urgency to signal a new policy stance. We expect the ECB to refrain from commenting on any potential taper discussion, which has started in the US.”


“We fully expect the ECB on hold next week. Ms. Lagarde will reiterate that December’s recalibration was enough, while at the same time repeating the Council’s commitment to adjust policy as and when necessary. Despite the prospect of extended lockdowns in Q1, the Council will probably still consider the December staff projections as plausible. Some immediate downside risks have lessened. Inflation remains very depressed and is yet to return on a sustainable trajectory towards the ECB’s target. This could still take a substantial amount of time.” 


“We do not expect any changes to monetary policy. Most likely the purchases will continue to be roughly the same size up until summer as during the second half of 2020, but at the same time, there are strong powers in the central bank eager to scale down the PEPP as soon as possible. The flexibility of the PEPP will most likely be emphasized as vaccinations reach a larger part of the population and downside risks in the economy become smaller and less epidemic related. In a situation where better market conditions overall would support financing conditions considerably more than right now, smaller purchases could be warranted. Such a move would have to be well communicated, but this could be the preferred exit strategy of the ECB.”


“Little is expected of the ECB after December’s easing measures. However, we would expect President Lagarde to say that the ECB is ‘monitoring the exchange rate carefully’, wary of the euro’s impact on an already subdued inflation rate.”


“Citi analysts do not expect any changes on policy or communication but it is of interest to see what message President Lagarde sends with respect to the near-term outlook and risks surrounding the baseline and current strength in EUR and impact on euro area’s longer-term inflation outlook.”