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Apr 09 - 06:55 PM

MUFG: ECB April Meeting to Set Stage for Potential June Rate Cut

By eFXdata  —  Apr 09 - 03:00 PM

Synopsis:

MUFG anticipates the European Central Bank (ECB) to possibly prepare markets for a June rate cut during its upcoming April policy meeting. Key considerations include the ECB's current stance on rate cuts as "premature" and how President Lagarde might signal towards an increased likelihood of easing in June. The market's reaction will hinge significantly on the ECB's forward-looking comments, especially concerning actions beyond an initial rate reduction.

Key Points:

  • June Rate Cut Prep: Discussion on the imminence of rate cuts and potential signaling from Lagarde regarding June's policy direction.
  • Post-June Cut Strategy: Anticipation of a cautious approach from the ECB, with references to "not being on auto-pilot" and potential for skipping rate cuts in future meetings.
  • Oil Prices and Inflation: Rising oil prices could urge caution from the ECB, affecting the pace and extent of subsequent rate cuts.
  • Impact of US CPI: The meeting comes on the heels of the US CPI report, which could influence market momentum leading into the ECB meeting. Any signs of weakness in US inflation could reignite expectations for a Fed rate cut in June.

Conclusion:

The ECB's April policy meeting stands as a crucial prelude to a potential rate cut in June, with President Lagarde's commentary expected to play a pivotal role in shaping market expectations. The ECB's forward guidance, especially in the context of rising oil prices and upcoming US CPI data, will be critical in determining the trajectory for rates and the EUR/USD exchange rate. MUFG has adjusted its Q2 EUR/USD forecast slightly lower but maintains the viewpoint that both the Fed and the ECB are on paths to ease policy, pending further economic indicators.

Source:
MUFG Research/Market Commentary

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