ECB Press Conference Reaction: Euro bulls will need to wait
(by Peter Rosenstreich)
Today's ECB rate decision and press conference in our view provided no real surprises. As with the BoJ, the ECB is more confident about the threat to growth outlooks but inflation remains an uncertainty. For any adjustment, we would have expected the ECB to have materially shifted their view on the mid-term inflation outlook.
The message was around growth positive with risk retreating “towards a more balanced configuration”. The language used around inflation was basically unchanged. In our view the most obvious modification was Mario Draghi's comment that no debate was held on the ECB's monetary policy stance, which changed slightly from the perceptions in March that early discussions on possible exit strategies were had.
To keep everything neat and tidy, Draghi undoubtedly linked any future decision on monetary policy to inflation forecasts. Given the direction of inflation, we anticipate the ECB will be challenged with a decision to make by September, so Euro bulls will need to wait.
Clearly the market was disappointed with Draghi’s avoidance of any suggestion of tapering in the near term. We should see further EUR selling against the USD as the Fed remains the only G10 central bank in tighten mode.