ECB unlikely to encourage further yield gains
Our economists expect today’s ECB press conference to tread a cautious path in discussing recent improvement in economic data, with only minor changes to staff projections and an unchanged risk assessment surrounding those projections. This message may be moderately reassuring for rate markets and help curb the recent run up in euro area front-end yields. We note that rate market reaction to ECB decisions has tended to pivot from meeting to meeting this year and, although last month’s meeting saw only a small net move (see chart), rates did move higher in the subsequent weeks. As highlighted by our European economists, the risk to that benign scenario is that President Draghi’s press-conference steers to a tone that is more optimistic than the overall stance of the Governing Council, similar to some instances earlier this year. The bottom line for FX is that ECB policy easing is increasingly unlikely this year, which should keep EUR well-supported vs. the low-yielding JPY and CHF.
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BNP Paribas