Credit Suisse discusses its expectations for tomorrow's ECB policy meeting and EUR/USD outlook.
"This week’s G10 highlight is tomorrow’s ECB meeting. We noted that it is possible that there will be “technical adjustment” lower to monthly PEPP purchases from the current EUR 80bio towards 60bio, as many market participants expect, in light of improved euro area financial conditions. But we argued that it is likely that the ECB would offset this “tapering” by making it clear that its more aggressive inflation target, after July’s Strategy Review, will likely require persistent and expanded asset purchases through other vehicles like the APP once PEPP winds down, after March 2022. This dovish structural message would likely offset the upward pull on euro area bond yields, and EUR, from PEPP taper," CS notes.
"We remain of the view too that the ECB is not inclined to tolerate a persistent rally in EURUSD given the resulting disinflationary pressures that would arise. We suggested we would look to sell EURUSD on any pop towards 1.2000 linked to PEPP taper given our framework," CS adds.