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Analysts: what to expect from ECB?

BNP Paribas: “ECB likely to deliver significant policy easing measures, weakening the currency. Our economists expect a 10 bps rate cut and also see greater than 50% chance that this is accompanied by a cut in the deposit rate into negative territory. We also expect measures to improve money market liquidity, most likely a decision to end sterilization of the SMP portfolio. We think a sub-zero policy rate would be perceived as a significantly negative development for the EUR and that the currency would move sharply lower in response. A repo-rate cut alone we be less damaging for the currency but should still push it modestly lower and even an end to SMP sterilization alone without any movement on rates should still be consistent with the EUR/USD losing ground over time, particularly if US data Friday meets or beats expectations.”

Credit Suisse: "We think that Draghi will announce: (i) a 2016 inflation projection of around 1.6%; (ii) no change in interest rates; and (iii) ending the sterilization of SMP purchases. We would anticipate very limited impacts on EUR under that base case – perhaps a very small euro depreciation to the extent that SMP action is not fully priced. But there are risks of further EUR upside should the ECB’s 2016 inflation projections be close to target or, to a lesser extent, SMP sterilization not be ended. EUR/USD could potentially rise towards $1.40 in the near term with a 2016 inflation forecast within touching distance of 2%. The extent of such a reaction will depend on how dovish Draghi manages to come across in such a scenario, which he would like to given the adverse impacts of euro upside, but where he would face challenges." 

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