MUFG Research discusses its expectations for the ECB's July policy meeting on Thursday.
"We are maintaining our call of an ECB rate cut this week. The announcement will be on Thursday and given the next meeting will not be until 12th September, we see little reason for the ECB to wait that long. There is a resounding consensus in the market now that the ECB will ease its monetary stance further – with most of the market expecting a cut at the September meeting. We simply say – why wait?," MUFG projects.
"The 5yr/5yr inflation swap rate has moved off its lows and on Friday hit the highest level since toward the end of May. This move is in part on the speculation of the ECB changing its inflation mandate. A surprise, aggressive move this week would ensure this move off recent lows is reinforced.
The hit to the euro would we believe be relatively modest. Yes, a retest of the 1.1100 lows versus the dollar would be likely but with the Fed following on 31st July, the markets would be wary of pushing EUR/USD considerably lower at this juncture," MUFG adds.