As universally expected, the ECB kept its policy rates unchanged at today’s meeting. The tone of the statement was roughly the same, but there were some growing signs of caution about the growth and employment outlook, and the GC appears to be looking beyond the recent strength of underlying inflation, TDS FX analysts note.
Rate differentials move in favour of the EUR
As universally expected, the ECB kept its deposit rate unchanged at 3.75% at today’s meeting. The ECB meeting did not bring much new information. President Lagarde acknowledged continued progress in domestic drivers of inflation. Tactically, we favor being long EUR duration.
There is not much for the Euro (EUR) to bite here, leaving price action mostly unchanged. No one was expecting a surprise today, so the focus will be on inflation data and outlook. Markets continue to look for another move in September. For EUR/USD, much of the focus has come from the US side, with rate differentials moving in favor of the EUR.
For now, we believe the USD has plenty of bad news already priced in, suggesting that EUR/USD offers good entry levels to fade the recent rally. Notably, our MRSI portfolios are still tilted towards long USD in most key macro portfolios, except rates. Currently, risk, equity, carry, growth and now short-term fair value (HFFV) are long USD.
Source: Fx Street
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