EURO TO CORRECT LOWER IF ECB SIGNALS A POSSIBLE RATE CUT IN APRIL – MUFG

EUR/USD has surged above 1.0900 ahead of today’s ECB policy meeting. Economists at MUFG Bank analyze Euro’s outlook.

Will the ECB indicate that rate cuts are moving closer?

We are expecting the ECB to indicate that they are moving closer to cutting rates at today’s policy meeting although the timing of the first rate cut is unlikely to be as soon as at the following policy meeting in April. Recent comments from ECB officials have indicated that a June rate cut is emerging as the most likely scenario. It would give the ECB more time to assess if wage growth has continued to slow at the start of this year.

For the Euro to correct lower today, the ECB would have to encourage market participants to price in a higher probability of an April rate cut. One potential catalyst would be a downgrade to the ECB staff forecasts for inflation.