ECB unlikely to deliver any new policy signals today, Governor Draghi to repeat his ‘delayed, not derailed’ inflation message: Danske Bank

The European Central Bank (ECB) is not expected to adopt any new policy signals at its monetary policy meeting scheduled to be held later today, according to the latest research report from Danske Bank.

However, central bank President Mario Draghi is likely to repeat his ‘delayed, not derailed’ inflation message, besides, striking an overall cautious tone and the ECB seen to maintain its downside risks assessment on growth.

Further, the central bank confirmed its ‘low-for-longer’ narrative at last week’s Watchers conference. The economic indicators are yet to show a convincing pickup but positively some stabilisation in indicators (except in the German manufacturing sector and core inflation) has been observed, which Draghi is expected to acknowledge.

The March minutes showed that a case was made to change the risk assessment after the lower projections. That said, we still expect the ECB to keep its downside risk assessment, reflecting particularly weak manufacturing, which is still to show a pickup, the report added.

On the positive side, the recent Chinese PMI pointed to an improved global cycle in the near future. Worryingly, though, the minutes said ‘that growth might not be mean-reverting, as typically assumed in projections’, pointing to China amongst others.

Markets are also expected to be disappointed about additional colour on a potential tiering system. However, given Peter Praet’s comments last Thursday, Draghi is seen to face questions on the format and timeline of a potential tiering system.

"For EUR/USD, the coming months will be a tug of war, between the development in global risk sentiment and carry. The recent bout of better Chinese data provides some comforting support for EUR/USD, however, on the other hand, carry on short EUR/USD still sits above 3 percent in a 1Y FX forward, albeit down from 3.45 percent last year following the repricing of the Fed. We forecast EUR/USD at 1.13 in 3M and highlight that if the ECB starts to look into QE or rate cut options, we could see a dip to 1.10 in the short term," Danske Bank further commented in the report.