BOJ Governor Kazuo Ueda Hints at Rate Hike as Inflation Pressures Build 
Bank of Japan Signals Potential Rate Hike as Inflation Risks Rise Amid Energy Shock 
South Korea Central Bank Signals Inflation Concerns as Oil Prices Surge 
DOJ Ends Probe Into Fed Chair Jerome Powell, Boosting Kevin Warsh Confirmation Prospects 
Eurozone Recession Risks Rise as Middle East Conflict Threatens Growth, ECB Official Warns 
South Korea Central Bank Signals Cautious Policy Amid Inflation and Middle East Tensions 
AI-Driven Inflation Raises U.S. Consumer Prices, Goldman Sachs Says 
Bank of England Set to Hold Interest Rates as Inflation Risks and Iran War Impact Loom 
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.
