ECB has scope to deliver on rate cut expectations – BBH

EUR/USD is consolidating just under 1.0500. Over the weekend, ECB Governing Council member Fabio Panetta argued for looser monetary policy , BBH’s FX analysts report.

ECB stance can pull EUR/USD lower

“Panetta said that monetary policy continues to exert downward pressure on economic activity and on inflation, an effect that is less and less necessary with near-target inflation and persistently weak domestic demand. A less decisive easing of monetary policy could lead to excessively low inflation in the medium term.”

“Markets imply another 75bps of ECB cuts in the next 12 months which would see the policy rate bottom at 2.00%. Unlike the Fed, the ECB has scope to deliver on rate cut expectations which can pull EUR/USD lower. ECB Governing Council member Joachim Nagel speaks today (11:00am London). Contrary to Panetta, Nagel has cautioned against easing aggressively.”