ECB Monetary Policy Forecast


This Thursday the European Central Bank will update their monetary policy. Should we expect a change in the interest rates? This and more are discussed in this 23 April ECB Monetary Policy Forecast.

23 April, Swissquote – Risk appetite seems to be recovering, as shown by EUR/CHF testing 1.2000. Yet demand for emerging market currencies remains weak. Brent crude is nearing US$75/barrel on the back of supply concerns, declining US inventories and OPEC’s announcement that the supply glut is now gone.

Currency Markets Are Confused

The correlation of FX and interest rate spreads has weakened, yet with US 10-year treasuries nearing 3%, markets are starting to find them attractive. Trump tax cuts will widen US deficits.

If all this sounds confusing: yes, it is. Markets have been too quick to embrace flavors-of-the-month. Fashionable thinking makes us skeptical. Take India: despite solid structural fundamentals, a cyclical upturn in oil price has triggered fear of capital flight.

The US Treasury has placed the rupee on the watch list of currencies, which has freaked out traders. However, India is far from a currency manipulator, due to persistent current account deficits. With global yields low, volatility low and growth solid – this is what we will trade on. If you must trade now, higher oil should support NOK, CAD, ZAR, BRL and AUD.

23 April ECB Monetary Policy Forecast

This Thursday the European Central Bank will update monetary policy: we expect that interest rates will not change. The ECB will say it needs to wait again in its slow move to normalize money without pushing EUR/USD significantly higher.

As Janet Yellen, former Chair of the US Federal Reserve Bank managed to do in the USA: end ultra-loose policy without driving a USD stampede. ECB President Mario Draghi’s will focus on details for ending quantitative easing yet avoid discussion on interest rates.

With US 10-year treasuries making a run at 3.0%, rising bond yields are giving the greenback a solid boost. Markets are focused on inflation, thanks to higher oil prices. Steeper US yield curves will keep USD strong against oil-importing EM currencies such as INR and TRY.

March weakness in European economies was temporary: April purchasing managers’ data came in above expectations: PMI composite rose to 55.2 versus 54.8 expected, while manufacturing was slightly below at 56.0 vs. 56.1 expected. June and July should bolster the case for a Euro interest hike. It will also be busy for corporate earnings, with over a third of the S&P 500 set to report.

Disclaimer

This article 23 April ECB Monetary Policy Forecast was written by Peter Rosenstreich, an analyst at Swissquote. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.

This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or any other kind of investments.

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