ECB holds rates and point to stronger-than-expected growth
EUR/USD gained ground in the afternoon session, drawing support from an upbeat set of ECB communications and the soft US CPI report, which has reinforced the case for the Fed's ongoing easing cycle.
The ECB’s updated staff projections point to stronger-than-expected growth in the next couple of years. This was accompanied by suggestions of more persistent underlying price pressures, largely reflecting stickier services inflation. Although these changes were broadly anticipated, they should bolster the argument in favour of no further cuts in the near-term.
Monetary policy remains in a “good place”, and we don’t expect any interest rate changes in the coming months. The improved economic outlook raises the possibility that the next move in rates could be a hike, although this is a distant prospect and uncertainty is high. The ECB will likely keep its messaging relatively vague for the time being, with Lagarde doing exactly that by failing to provide forward guidance and instead highlighting optionality.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
