DailyFX European Market Wrap: ECB Lowers Inflation Forecasts, Dents Euro


The breaking news has come from the European Central Bank where it’s kept rates on hold as forecast, but its downgraded inflation forecasts for the next three years this year from 1.7 to 1.5 percent, 2018 from 1.6 to 1.3 percent and in 2019 down from 1.7 to 1.6%.

These downgrades are behind the statement from the ECB that it says that a very substantial degree of monetary accommodation is needed because inflation remains low.

Despite this it’s removed the reference to the potential for lower rates from this point but says that it retains the right to increase the size and duration of its bond buying programme.

All this comes after Eurozone GDP was revised up, expanding by 1.9% year-over-year, the fastest growth since the fourth quarter of 2015. Forecasts had been for 1.7 percent growth, QoQ this rose from 0.5 to 0.6%.

So while growth is relatively upbeat inflation is the issue and as a result the Euro has taken a knock.

On to the UK election…Sterling continues to trade below $1.30 it’s down today from its highest print of 1.29.77. The risk remains the outcome of the general election.

The IG election spreads show that the sitting conservative party is likely to be able to double its current 17 seat majority. The polls close this evening at 10pm local time.

Coming up tomorrow, in China, there’s Consumer prices where expectations for May are a drop of 0.2% MoM, but the year on year inflation is still running positive at around 1.5%.

Then looking for a trade around the Euro with Germany’s trade balance numbers for April, looking for an expansion of last month’s surplus of 19.6bln, which is coming under scrutiny as an unwanted Eurozone imbalance. In the UK later in the day the NIESR GDP estimate.. will it be revised down?

And as oil prices take a hammering this week there could be some more bad news as the Baker hughes oil rig Count is released, this is the number of new rigs in the US, boosted by the rise in shale wells re-started, could we see this rise again, which would be the 21st consecutive weekly uplift?

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— Written by Jeremy Naylor, DailyFX

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