ECB: Rates on hold but easing package on the way - TDS

Jacqui Douglas, chief European macro strategist at TD Securities, notes that the ECB left its policy rates on hold, but entirely re-wrote its press release, clearly preparing for a package of policy easing in September.

Key Quotes

“We look for a dovish press conference now, as the ECB is clearly concerned about the trajectory for inflation. We think that the reference to "symmetry" in the inflation aim is key, as that signals more comfort than we've seen in the past with a temporary overshoot in inflation.”

“After the absence of a rate hike led to a knee-jerk hawkish reaction in EUR and bund yields, markets have since reversed, with EURUSD down 0.2% on the day and Bund yields sinking to -0.41%. Anything that reinforces more than a 10bps cut in Sep can see the front end continue to rally. Anything that suggests a large return to QE can see the the entire curve rally, reinforce spread compression, and have a larger impact on FX.”