Dovish sentiment in ECB prevail, what to expect?

Today, the ECB will publish its decision on the key interest rate in the eurozone, and the expectations are that there will be no cardinal changes in monetary policy, despite the growing appetite of investors for its review.

Sustainable job creation, as well as the growing confidence of business and consumers, have led to many economists revising their economic forecasts for some major European economies.

Since the eurozone has seen its best economic growth for a decade, the ECB has to gradually change its position to avoid bad economic growth at a later stage, according to the December Central Bank report released on January 11. This, of course, made the euro rise to record highs against most major currencies.

The strength of the euro remains one of the major challenges the central bank has to fight over the coming months, as a stronger currency is aimed at mitigating inflation, making exports more expensive and cheaper imports. On the other hand, the upcoming elections on March 4 in Italy will hardly lead to a stable government, and given the difficult situation in Germany, central bankers are likely to postpone any changes by the end of the year.

What happens to inflation?
The ECB has long struggled to bring core inflation to its target of around 2%, and the central bank is not expected to reach its target at the earliest by 2020. At the end of last year, the bank said total inflation would reach 1.5% in 2017. and 1.2% in 2018.

At its last meeting in December, the ECB's key interest rate remained unchanged. In October, the ECB announced a QE decrease of €60bn. to €30 billion. At that time, the bank also stated that QE will remain in force until September 2018, leaving optional further purchases if the economic conditions so require.

Source: Bloomberg Pro Terminal

Jr Trader Petar Milanov

Read more:

• USA ADP Nonfarm Employment Change: 202K vs 160K
• Iran response was ‘too fast and too furious’ on the U.S. airstrike
• USA – ISM Non-manufacturing PMI: 55.0 vs 54.5
• Top 5 things to watch on Tuesday
• Noise: How to Overcome the High, Hidden Cost of Inconsistent Decision Making