German bunds remain mixed ahead of ECB’s monetary policy decision

The German bunds remained mixed Thursday as investors, now, shall be focussing on the European Central Bank’s (ECB) monetary policy decision, scheduled to be unveiled today by 12:45GMT.

The German 10-year bond yields, which move inversely to its price, edged 1/2 basis point higher to 0.66 percent, the yield on the 30-year note remained flat at 1.30 percent and the yield on short-term 2-year hovered around -0.53 percent by 08:55GMT.

The main event will be the conclusion of the ECB’s latest Governing Council meeting. While the accounts of recent policy meetings flagged the possibility of a change in the first half of this year to the ECB’s forward policy guidance – including at a minimum the removal of the easing bias on the net asset purchase programme (APP) – the Governing Council might yet again choose to err on the side of caution and leave its policy statement broadly unchanged. Softer readings of the February economic surveys might have provided a warning against complacency on the Governing Council, all the more so given that GDP growth has not been quite as strong as recent confidence indices suggested.

More importantly, recent inflation data have remained disappointingly weak. Indeed, with headline CPI in February at its lowest level since end-2016 and core CPI just 1.0 percent y/y, the ECB’s long-sought uptrend in underlying inflation remains elusive. Moreover, further euro appreciation – which might result from a sudden substantive change of policy guidance – could have an adverse impact on the economic outlook.

So, if there are changes made to the policy statement, we suspect that they will be relatively modest and aimed at a low market impact. Certainly, we do not expect to see a clear steer on future policy until the June meeting.

Meanwhile, the German DAX slipped 0.13 percent to 12,097.12 by 08:55GMT, while at 08:00GMT, the FxWirePro's Hourly Euro Strength Index remained slightly bearish at 92.68 (higher than +75 represents bullish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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