ECB to hold rates in response to US trade deal as EUR gets boost from agreement
Reports that the EU was close to striking a framework trade deal with the US kept the common currency well bid last week. Equity markets have reacted positively to the news of the deal so far today, although the moves in the euro have been subdued, given that an agreement was already heavily priced in.
The European Central Bank provided no real surprises last week, as it held rates steady and reiterated that policy was in a “good place”. Yet, Lagarde’s tone was moderately more hawkish than we had expected, as she both expressed confidence on inflation and made no attempt to talk down the value of the euro.
Now that a US-EU trade deal is secured, we’re pretty confident that the ECB will stay on hold for at least the next couple of meetings, and it's not out of the realm of possibility that the council has delivered its final cut in the current cycle.
Preliminary Q2 GDP figures and July inflation numbers will be released on Wednesday and Friday respectively, but the euro will likely be driven more by the fallout from the trade deal than anything else.
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.
