ECB’s Cipollone Backs Digital Euro as Europe Pushes for Payment System Independence 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
RBA Expected to Raise Interest Rates by 25 Basis Points in February, ANZ Forecast Says 
MAS Holds Monetary Policy Steady as Strong Growth Raises Inflation Risks 
Bank of Japan Likely to Delay Rate Hike Until July as Economists Eye 1% by September 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
The FX market continues pricing a high probability of an additional 10 bps rate cut by the ECB in H1 2017 (see graph).
As per ECB official, easing monetary policy by rates cut measures again would require a diverse worsening of the medium-term inflation outlook.
Such a scenario is not impossible but quite unlikely in the coming months, due to the resilience of the European economy and upcoming base effects on headline inflation.
Moreover, deep rate cuts seem definitely excluded, given their negative side effects and potential FX impact, which would be at odds with G20 commitments.
This implies limited downside potential for EUR rates.
A durably accommodative status quo from the ECB implies value in leveraged conditional rolldown trades in the belly of the EUR curve, where rates have the highest chances to remain below forwards.
Given floored ECB key rates and limited potential for EUR rates to decrease, we’ve been cosy enough to recommend 1x1.5 receiver ratio spreads with downside breakevens significantly below April 2015 lows.
