ECB: Risks to economic growth are tilted to the downside – BBH

EUR/USD retraced some of yesterday’s post-ECB meeting slump. As was widely anticipated, the ECB cut the key deposit facility rate 25 bp to 3.25%. The ECB also stuck to its data-dependent guidance reiterating it is not pre-committing to a particular rate path, BBH FX analysts note.

Process of disinflation seems more robust

“The bar for additional ECB easing is low and an ongoing drag for EUR. The ECB noted ‘the disinflationary process is well on track’ while ECB President Christine Lagarde reiterated that risks to economic growth are tilted to the downside.”

“Moreover, Lagarde confirmed the decision to cut 25 bp yesterday was unanimous and highlighted there was more downside than upside risks to inflation. Market is now pricing in almost 175 bp of ECB rate cuts over the next twelve months that would see the policy rate bottom near 1.50% vs. 2.00% earlier this week.”

“ECB officials followed through on the bank’s dovish policy outlook this morning. Governing Council member Villeroy said the direction is clear in my eyes — we should continue to reduce the restrictive character of our monetary policy in an appropriate manner. Meanwhile, Governing Council member Vasle noted everything points to the process of disinflation being more robust.”