ECB: We expect the central bank to ease policy at the next meeting -  Danske

According to analysts from Danske Bank, the European Central Bank (ECB) will ease monetary policy at the next meeting as they foresee a weakening in economic data.

Key Quotes:

“In our view, more easing is likely to follow at the next meeting in September as the ECB sees itself in a better position to access the impact of the Brexit vote when they have updated projections.”

“We expect the ECB to ease monetary policy at the next meeting as we foresee a weakening in economic data. Our call is that the QE programme will be boosted temporarily to EUR100bn for the rest of 2016 and that the programme will be extended until September 2017. We do not forecast any further rates cuts from the ECB.”

“Bund yields have edged slightly higher after the ECB press briefing underlining that Draghi was seen as slightly less dovish than expected. The lack of discussion of a change of the ‘capital key’ towards a ‘debt key’ weighed slightly on Italian bonds. A change in the ‘key’ would in our view, everything being equal, result in higher purchases of Italian bonds. Despite the announcement today, the money market is still pricing a high probability of a new rate cut from the ECB, which we still think is overly optimistic.”

“EUR/USD barely reacted in line with expectations as Draghi signalled a wait-and-see attitude but left the door open for more easing. We maintain our call that EUR/USD will fall modestly ear-term (3M forecast 1.07). Further ECB easing and US growth outperformance should drive EUR/USD lower in the autumn. Medium term, we maintain our long-held call for a higher EUR/USD towards 1.14 on 12M on valuation and current account differential.”