Danske Markets expects the ECB to leave policy rates unchanged on Thursday and Lagarde to offer no firm guidance. The Fed's hold a day earlier already nudged short-dated US yields and the dollar lower.
Danske Markets expects the ECB to keep policy rates unchanged, with the deposit rate at 2.50%, in line with consensus and market pricing. It also expects Lagarde to keep full optionality on the future rate path and give no firm guidance, which should limit the market reaction.
What the ECB meeting could still bring
Danske Markets will watch for potential communication on the minimum reserve requirement (MRR) and the operational framework. It calls this important for money markets but not for the broader macro story.
Data adds to the picture. The European Commission's October business survey is due, and Danske Markets says firms' selling price expectations are the most important data to follow. Irish Q3 GDP is also due, ahead of tomorrow's aggregate euro area figure. In Q2, Irish GDP rose 10.2% q/q and accounted for more than half of euro area growth. Danske Markets says Ireland is neither representative of euro area growth nor important for the ECB's outlook, so it focuses on euro area GDP excluding Ireland.
Fed hold weakens the dollar modestly
The Fed kept policy rates unchanged at 3.75-4.00% on Wednesday, as expected. Hammack and Cook dissented in favour of a 25bp rate hike.
At the press conference, Warsh offered no specific guidance on the future rate path. Danske Markets reads his comments on the economic outlook as hawkish, but short-dated US yields declined and the USD weakened, however modestly, because he did not commit to a December hike.
Danske Markets expects a similar lack of surprise from the ECB: unchanged rates and no clear forward guidance.
Source: ActionForex
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