ECB: Risks for disappointment amid no fireworks – BofA

The analysts at Bank of America Global Research provide their expectations at what they expect from Thursday’s European Central Bank (ECB) monetary policy decision, in the face of mounting coronavirus risks in the Old Continent.  

Key quotes

"The ECB should express its concerns in this week's meeting, in our view. The COVID-19 situation is fragile, and the cold weather season has barely begun. It is unclear if recent restrictions are enough. Eurozone core inflation is likely to weaken further, in our view, from already historic lows. Brexit remains unresolved and the recovery fund could be questioned and delayed. We could do with certainty that more ECB support is coming in December.”

“Committees being tasked would be a very clear signal, but maybe that is expecting too much this week.”

"In this context, we do not expect much from the ECB this week. A signal for PEPP expansion in December should already be mostly priced in, with risks for disappointment. Any indication for open-ended and inflation linked-PEPP would be a market surprise, in our view, but again, the communication for such a move would be important to determine the EUR impact.”

“In any case, we believe that in the short term the EUR depends more on global-COVID-and US-elections-factors, than the ECB. The EUR is not currently overvalued in our view-our EURUSD equilibrium estimate is 1.23-but the recent collapse in Eurozone inflation would justify a weaker EUR, in our view.”