FxWirePro: ECB monetary policy preview

Today European Central Bank (ECB) is to provide further guidance in policy meet. Result to be announced at 12:45 GMT, followed by a press conference at 13:30 GMT. The meeting is to be held at the ECB headquarter in Frankfurt.

Current policy measures–

• Deposit facility rate at -0.40 percent
• Refinancing rate 0.00 percent
• Marginal lending facility rate at 0.25 percent
• ECB has several TLTROs in its portfolio.
• Assets can be bought at yields below the deposit rate.
• In the latest action, ECB tapered asset purchases to €15 billion and extended the program until the end of the year. ECB ended its asset-buying program at the end of 2018.

Expectation today –

• European Central Bank (ECB) is expected to maintain its current policy in terms of interest rates.
• The market is looking for guidance on future actions especially as the economy cools.

What to watch out for –

• Change in inflation and growth forecast.
   
• Take on tapering or on the future path of monetary policies.
   
• Concerns over the European banking system.
   
• Recent volatility on the bond markets around the world.
• Whether ECB seems comfortable with the level of the Euro or does Draghi talk the currency down.

Impact –

The euro is consolidating in a range of around 600 pips (1.12-1.18) since May 2018. The focus is clearly on the European Central Bank (ECB), as the market is looking for a clear guidance.

However, faced with numerous uncertainties such as trade war, Italy vs. Brussels standoff, weakness in the economy, President Draghi is likely to dodge questions on the exact timing of the first rate hike.  

Instead, we expect the central banker to talk dovish, in order to lower the euro. The euro is currently trading at 1.131 against the USD.