ECB to cut rates next month
The ECB policy decision was yesterday’s focus. With no changes to the headline interest rate and no further stimulus announced, the Euro initially strengthened – repeating the pattern we have seen for 4 months now.
However, the Euro nose-dived during the Q&A session, as Draghi ‘pre-committed’ to ease policy next month. Mr Draghi indicated that the ECB would be “comfortable with acting next time”. He also said there was ‘a consensus about being dissatisfied with the projected path of inflation’ as well as ‘a consensus not to accept it as an act of nature’.
The markets have interpreted the comments as the ECB effectively having taken a decision in principle to ease policy in June. His comments also implied the Governing Council would decide upon the shape and scale of that action in the light of the staff projections for inflation (and activity) that measures will be prepared for the June 5th policy meeting of the Governing Council.
Obviously, this decision by the ECB weakened the Euro and saw GBP/EUR break 1.2200. The Euro may slide further as the market takes full stock of what was said and what may happen.
In other non-news, the BoE as expected left its policy unchanged with no real reaction in sterling crosses.
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