ECB Preview: Lower macro projections set the stage for a prolonged period of policy stand-off

The ECB Governing Council is expected to keep the rates on hold in March with no changes made to its forward guidance yet.
ECB staff macroeconomic projections will downgrade the grown and the inflation forecast, especially the near-term projections.
The ECB is expected to opt for a wait-and-see policy stance rather than launch the long-debated TLTROs as lending supporting mechanism.
The main message is expected to voice the risks to the Eurozone growth outlook tilted top the downside with the outlook for rates currency bearish.

Mario Blascak, PhD Independent Analyst

The ECB Governing Council is expected to keep the monetary policy unchanged while downgrading its near-term growth and inflation forecasts provided in staff macroeconomic projections. The key policy message will be up to the ECB President Mario Draghi to communicate during the press conference on Thursday, March 7.

While the main message from the ECB is expected to remain broadly unchanged from January with the Governing Council echoing the risks to the Eurozone growth outlook tilted top the downside, the uncertainty is likely to hold the policymakers back in terms of launching another stimulus program just three months after the asset purchasing program ended last December.

The rate and currency market implications from the ECB meeting are rather bearish with lower macroeconomic projections on growth and inflation outlook meaning the policymakers can afford to hold back with the launch of alternative stimulus and will likely opt for a more wait-and-see approach. Even with the press conference of Mario Draghi traditionally implying higher volatility, the EUR/USD is expected to remain capped within 1.1200-1.1400.

The general assessment of the economic situation in the Eurozone is realistic but conditional, with policymakers considering the current slowdown a natural pullback after years of expansion.

The National Bank of Austria Governor Ewald Nowotny said on February 27 for the Italian newspaper La Stampa that it is natural to have a slowdown in the Eurozone economic growth after 4-5 years of remarkable expansion. “The slowdown of the European economy is significant and the ECB could change its interest-rate guidance if it becomes clear the situation isn’t temporary,” Banque de France Governor Francois Villeroy de Galhau said on February 17 for Spanish El Pais.

The launch of the long-debated targeted long-term refinancing operation (TLTROs) is probably not on the agenda yet even with the tool considered an overall success according to the ECB top officials from the Executive Board. The ECB chief economist Peter Praet said on February 19 for German newspapers Börsen-Zeitung that TLTROs have been a very useful tool to deal with impairments in the transmission of monetary policy and they are part of the toolbox, especially in the situation when the Eurozone economy was to slow more sharply.

The Eurozone composite PMI and GDP growth

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Blaščák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying

The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.

Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff

Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.