Watching US, Focus at Home
The ECB was already entering this month’s decision with its hands full but now the situation in the US has arguably increased pressure for the Governing Council to ‘over-deliver’. Just like the Fed, the ECB might be tempted to pre-empt any potential growth drag if the US – the Eurozone’s largest non-EU trading partner – enters a prolonged period of economic retrenchment. This week’s weak CPI and German unemployment prints may add to the pressure on the Governing Council to act. Despite these issues we do not believe markets are pricing in an aggressively dovish ECB decision on Wednesday. In addition, how to act is just as important as when to act (for details see FX Comment: ECB challenged by low inflation, Sep 27th by Beat Siegenthaler). In this respect, we doubt the ECB will over-react to US issues but continue to focus on effective stimulus domestically.
Read the full report: UBS