ECB Minutes Preview: Coronavirus, inflation, and strategic review comments set to move EUR/USD

Is the European Central Bank ready to get off the fence and act to stimulate the economy? That is the question that euro traders are asking as darker clouds are gathering over the global and local economies. The ECB's Monetary Policy Meeting Accounts may reveal more on the bank's thinking and open the door to action in March.

The minutes provide insights into the Frankfurt-based institution's meeting in late January – one day before inflation figures missed expectations and as the coronavirus outbreak was beginning to dominate headline. It also came before Germany reported a plunge in industrial output in December and stagnation in the fourth quarter.

Nevertheless, it is essential to remember that the document is edited before its publication and that policymakers are aware of potential market reactions and may thus choose to emphasize specific points according to developments. 

And while news has been mostly adverse since then, the ECB's Governing Council consists of hawks – Germans and others – that see the bank's role as limited. 

Here are three factors to watch out for:

Inflation – Is the ECB worried about a fresh fall?

Price stability is the bank's "single compass," and it aims to keep the headline Consumer Price Index at 2% or close to 2% yearly. The preliminary figures for January showed CPI rising to 1.4%, but Core CPI falling to 1.1% yearly after several encouraging months. 

Will the ECB express concern about the lack of underlying inflation? If policymakers worry about weakening core CPI – reversing their previous optimism – EUR/USD has room to fall. 

Conversely, if hawks focus on altogether healthy headlines prices – which include energy – the common currency has room to rise. 

Weak growth and the coronavirus

Even before the latest economic figures were released, eurozone growth had been mediocre at a minimum. Nevertheless, Christine Lagarde, President of the ECB, remained somewhat optimistic that the recovery can be sustained at a slow pace. The document may expose deeper concerns – weighing on the euro – or alternatively show more confidence.

The bank mentioned the coronavirus outbreak as one of the risk factors. The minutes may reveal if it is only one of many considerations. In this case, markets may disregard the minutes as out of date. On the other hand, if policymakers fear that severe economic damage is taking hold, the euro may lose ground. 

Strategic review

The only official announcement in January was the launch of the ECB's strategic review, which will likely redefine the inflation goal and will also take other parameters such as climate change into account. In January, Lagarde said that she expects it to conclude by year-end. 

Later on, reports came out that the ECB's president wanted to accelerate the timetable and finalize the exercise already in July, reflecting a sense of urgency. The accounts could provide insights on the thinking in Frankfurt about the timing. 

If moving forward with the review has become more urgent, the euro may edge lower, and while if moving forward, the end date was not discussed, it could be favorable for the common currency. 

Conclusion

While several developments – most prominently the worsening of the coronavirus outbreak – have occurred since the ECB meeting, the minutes may shed light on the bank's thinking and move the euro. Comments on inflation, the economy, and the timing of the strategic review are all of the interest.