Today, the Europen Central Bank (ECB) announces its latest policy decision. Economists at MUFG Bank analyze how the announcement could impact the Euro (EUR).

ECB to reiterate that rate cuts are unlikely until the summer

The ECB is expected to present a relatively hawkish update at today’s policy meeting.

ECB President Christine Lagarde sent a clear message about the potential timing of the first ECB rate cut when she stated that they plan to cut rates in the summer. We expect this message to be repeated at today’s policy meeting and for the ECB to continue to flag upside risks to inflation from geopolitical risks in the Middle East.

The updated guidance from the ECB suggests that the earliest point at which the ECB is planning to cut rates is from June although market participants are still pricing in a high probability that the first cut could be delivered even earlier in April. It should mean that today’s ECB policy is more of a holding operation like Wednesday’s BoC policy meeting which is likely to have limited impact on the performance of the Euro.