ECB review: An ocean of uncertainty

The ECB held policy rates unchanged as widely expected with the deposit rate at 2.00% on Thursday 30 April.
Lagarde refrained from giving firm guidance of the future rate path and stated that the ECB will have more information in June to take a decision, including new projections and scenarios. By extension, the market reaction was highly contained.
We continue to expect the ECB to increase policy rates by 25bp in June and July, respectively.

Danske Research Team Danske Bank A/S

The ECB decided to keep the three key policy rates unchanged at the April meeting as widely expected by both consensus and markets, keeping the deposit rate at 2.00%. The ECB stated that both the upside risks to inflation and downside risks to growth have intensified. Yet, the GC remains “well positioned” to navigate the uncertainty and they asses long-term inflation expectations are “well anchored”. ECB highlights that the implications of the Iran war depend on the intensity and duration, so they are not drawing firm conclusions yet but remain in “wait and see” mode.

During the press conference Lagarde refrained from giving firm guidance on the future path of interest rates. She highlighted the deteriorating growth prospects and that she was “certainly not seeing second-round effects”. Lagarde noted that it was a unanimous decision within the GC to keep rates unchanged, but they debated various options including a rate hike, which was a view held by some members of the GC. The ECB will have more information in June where their staff both updates the baseline projections and the economic scenarios. Until then, the ECB is faced with an “ocean of uncertainty”. As a consequence, the market reaction was highly contained with European rates remaining in a tight range, ending the press conference 1-2bp lower with EUR/USD breaking slightly below the 1.17 mark.

Download the Full Report!

Author

Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

GBP/USD slides below 1.3250 after failing to break through 23.6% Fibo

The GBP/USD pair meets with a fresh supply during the Asian session on Wednesday and moves away from a nearly two-week high around the 1.3275 region, touched the previous day. Spot prices currently trade around the 1.3235 zone, down 0.20% for the day, as traders look to speeches from Bank of England Governor Andrew Bailey and Federal Reserve Chair Kevin Warsh for a fresh impetus.

EUR/USD stays offered, breaks below 1.1400…again

EUR/USD adds to Tuesday’s slight losses and drops below the 1.1400 yardstick in the latter part of Wednesday’s NA session. The pair’s decline comes in response to the persistent recovery in the US Dollar, which seems to have met extra support following the cautious tone from Fed’s Warsh in his comments at the ECB Forum.

Gold retreats from tops, back to the sub-$4,100 zone

Gold keeps the bullish performance in place on Wednesday, although is now giving away part of its earlier advance past the $4,100 mark per troy ounce. The precious metal’s marked rebound comes despite the US Dollar’s bid bias, higher US Treasury yields across the curve and positive headlines from the Middle East.

A preview of NFP

The number is of much greater importance than usual as the Fed moves away from a forecasting framework and towards a current-data / rebuilding-credibility framework.

Crypto Today: Bitcoin, Ethereum, XRP stay under pressure as investors turn more risk-averse

The cryptocurrency market trades under intense headwinds on Wednesday, led by Bitcoin’s (BTC) deepening sell-off below $60,000. The Crypto King hovers above $58,000.

Just like Fed, is BoJ’s independence under threat?

When talking about central bank independence, most of the focus has been on Donald Trump’s pressure on the Federal Reserve. But a similar story, a quieter one for now, seems to be happening on the other side of the Pacific: Japan’s government may be testing the Bank of Japan’s independence.