Unsurprisingly, the market has learned nothing new from the policy statement, which is a near copy from December and full of the ECB’s old favourites: ‘meeting-by-meeting’, ‘data-dependent’, and the lack of a pre-committed path.
Even with the press conference, the strengthening in EUR/USD makes little sense to me.
I am struggling to find what might convince investors that the ECB has become more hawkish here; all I am hearing is a determined confidence that cooling wages will bring down services inflation, and that there is still some way to go before they hit neutral.
The lack of discussion around neutral rates implies that at least two or three more cuts are locked in in policymakers’ minds.
And for me, the risks are definitely tilted towards more than that. The ECB is clinging on to the optimism that falling rates and rising real wages will translate into a rebound in private consumption, but as we have seen as recently as Q4, the confidence to spend them just isn’t there. The recovery has been repeatedly delayed, and it is hard to imagine that this turns around in the near term.
With tariff risks ahead, sub-2% rates could quickly appear on the horizon.
Leave a Comment