Market Outlook on ECB Interest Rate Decision, June 14th
The ECB Interest Rate Decision on Thursday, 14th June 2018.
The ECB is highly probable to keep interest rates on hold at 0.00%, with a current probability of 97.41%, according to EUR OIS.
However, the most important matter among market participants is if and when the ECB will confirm the termination of its asset purchasing program. Market reports assume the ending of the purchasing program could be broken down into phases, starting from tomorrow’s meeting or on the July 26th meeting. Moreover the ECB could continue reducing its bond buying in September, and then discontinuing them completely by the end of the year.
Assets like real estate, stocks and bonds have appreciated in value and borrowing costs for European countries are considerably low. On the other hand, saving accounts have been hurt by providing lower returns.
Investment outlook is seen growing and improved within Europe compared to the previous years muted investments.
Many Investors and analysts outside Europe believe the continent provides advantageous financing conditions, as an improvement in profitability and solid demand is observed.
At the same time inflation projections could be considered to increase for the following years after the improved current number of 1.9% in May.
In our opinion, the case for a rate hike by the ECB is a far from possible scenario.
With reference to members of the European Central Bank Ewald Nowotny who made comments on the matter back in April, that such views do not reflect those of the governing council as per 2018.
The door is left opened for a 2019 rate hike, if the ECB decides the specific timeframe is suitable should the expected performance of the European economy prevail.
We expect EUR pairs to have increased volatility as the meeting gets closer and during the ECB statement release.
Especially EUR/USD could strengthen, if the meeting provides sufficient evidence to warrant a gradual unwinding of the ECB’s asset buying program, as this will confirm that ECB no longer needs this strategy and the economy is growing at comfortable levels.