Fed Meeting Sparks Division as Markets Brace for Possible Rate Cut 
BOJ Poised for Historic Rate Hike as Japan Signals Shift Toward Monetary Normalization 
Canada Stocks Steady as Markets Await Fed and BoC Decisions 
Fed Near Neutral Signals Caution Ahead, Shifting Focus to Fixed Income in 2026 
Bank of Korea Downplays Liquidity’s Role in Weak Won and Housing Price Surge 
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.
