Fingers crossed as ECB takes Centre stage – BBH

By FXStreet Research Team at BBH, suggests that the ECB is at the Centre stage today and the larger context of the meeting is the political leadership vacuum with Merkle exhausting much of her political capital on the refugee challenge.

Key Quotes

“There are also growing doubts among investors of the efficacy of negative interest rates and QE itself. The scar tissue from the December disappointment is still fresh.

The economic backdrop is one of renewed deflation, fragile and uneven growth (though Germany and France have reported stronger than expected January industrial output figures). As Draghi noted previously, fiscal policy may be marginally relaxed due to refugee-related spending.

There are several moving parts in the ECB’s unorthodox stance. To the extent, there is an agreement among economists it is that the cuts in the staff forecasts for inflation and growth will allow the ECB to cut the deposit rate another 10 bp to minus 40. There are some who think that to get ahead of the curve of expectations the ECB will cut 15-20 bp. The OIS market shows rates bottoming near minus 50.

There is also anticipation of a tiered system so …read more

Source:: FX Street