Back
4 Jun 2014
ECB dominating the FX space - RBS
FXStreet (Guatemala) - Strategists at RBS explained that the ECB decision is nearly certain to overshadow the Bank of England decision which takes place just prior to the ECB announcement.
Key Quotes:
“With no change in policy and no post-decision statement widely anticipated, the next major BoE event will likely be the upcoming BoE minutes”.
“With the ECB decision expected to dominate FX price action, Euro-area releases prior to the decision, including April retail sales and German factory orders, may not elicit a large EUR reaction”.
“In short, we see the risks as ultimately favouring the ECB "under delivering" on non-standard measures”.
“It is a close call but we do not We expect the ECB not to embark on balance sheet expansion tomorrow, but instead will reduce its 3 key interest rates by 15bp, bringing the MRO rate to 10bp and the depo rate to -15bp, and extend the fixed rate full allotment (FRFA) scheme. While not insignificant, these measures may not be enough to unlock a sustained EUR downtrend”.
“ECB balance sheet expansion is the step that would have the largest negative impact on the EUR in our view. To be sure, even if the ECB "under delivers", there is clearly a EUR-negative risk that the signaling language portends more robust measures may be still to come”.
Key Quotes:
“With no change in policy and no post-decision statement widely anticipated, the next major BoE event will likely be the upcoming BoE minutes”.
“With the ECB decision expected to dominate FX price action, Euro-area releases prior to the decision, including April retail sales and German factory orders, may not elicit a large EUR reaction”.
“In short, we see the risks as ultimately favouring the ECB "under delivering" on non-standard measures”.
“It is a close call but we do not We expect the ECB not to embark on balance sheet expansion tomorrow, but instead will reduce its 3 key interest rates by 15bp, bringing the MRO rate to 10bp and the depo rate to -15bp, and extend the fixed rate full allotment (FRFA) scheme. While not insignificant, these measures may not be enough to unlock a sustained EUR downtrend”.
“ECB balance sheet expansion is the step that would have the largest negative impact on the EUR in our view. To be sure, even if the ECB "under delivers", there is clearly a EUR-negative risk that the signaling language portends more robust measures may be still to come”.