Danske Research discusses its expectations for next week's ECB policy meeting.
"The ECB meeting on Thursday next week will be a stock taking meeting with focus on the resilient economic data and positive outlook for coming months while Lagarde will face questions on the recent PEPP purchase behaviour. We expect the growth outlook to be ‘broadly balanced’ paving the way for the PEPP purchase pace going back to February levels around EUR60bn after the June meeting. We think Lagarde will repeat the ‘delayed and not derailed’ recovery narrative. While we expect the June meeting will conclude in a lower PEPP buying, the battle about PEPP’s future is set for September in our view," Danske notes.
"For EUR/USD, ECB is unlikely to be a key story at the moment. At the last meeting, ECB’s optimism did spill over but given also the recent rally in spot from 1.17 to nearly 1.20, we would argue there is less scope to turn the tactical story even more positive. On net, we think that optimism towards the euro area is well priced in to inflation- and earnings expectations as well as FX. That said, if the discussion on PEPP drives European yields higher, we could see some effect on spot fx too," Danske adds.