Feathering the brakes or cutting the lines?
Today the ECB will deliver to markets its latest monetary policy decision. A press conference will follow the decision which will see journalists probe the President for information regarding the path of future policy adjustments. Today’s decision will take place within a market that has already fully priced in a 25 basis point cut. There would be very little incentive for the ECB’s governing council to deny the market of this expectation. If anything it could disturb market equilibrium and encourage higher volatility that could make the central bank’s task harder in the long run.
The attention will therefore almost exclusively be upon any indication of expected future policy changes. As is inevitable at this stage in a rate cutting cycle, unless the President wishes to sink ships, there shall be no loose lips. Heading into the event, communication from ECB rate setting members has focussed upon a gradual and data dependent approach to policy adjustment beyond the June meeting. As Q2 2024 has progressed, the extent of easing priced in from the ECB has moderated. Despite Euro risks remaining relatively well balanced beyond any endogenous risks to EURUSD caused by downside USD risks, there is room for further easing to be priced in.
Any such sympathies or indications from the ECB publication at 13:15 BST or the press conference that follows 30 minutes later could encourage EUR selling. Market volatility has moderated overnight whilst the Mexican Peso and SA Rand have stabilised. Significant post-electoral risks remain within both currencies. In the short run, risks are most pronounced within ZAR as opposed to MXN as the shape of any prospective coalition forms. We are familiar with these two currencies driving wider risk sentiment particularly within emerging markets. However, spillovers across developed markets have been tangible this week. Markets will also be wary therefore of further volatility creating additional noise within prices.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Defiance
Charles Porter
Tue 12 May 2026
Defiance Yesterday’s market was defying one of two things: logic or gravity. Come to think of it, perhaps both. Take cable, GBPUSD, yesterday. The key events beyond minor data releases centred around any chatter from either side of the Iranian conflict and Starmer singing for his supper. Sing he did and tweet the President did, […]
Daily Brief – A technicality
Charles Porter
Thu 25 Jun 2026
A technicality Markets appeared to be fatigued by Trump’s Iran war before a ceasefire had even been agreed. This was evident from pricing that would have been considered complacent should the conflict have dragged on longer than it ultimately did. Now, that saga is far from over – it’s inevitable, for example, that as the […]
Daily Brief – Short-lived relief rally
Charles Porter
Tue 19 May 2026
Short-lived relief rally A tantrum in the bond market has continued to erode away at risk conditions in recent sessions. In the UK, the sell-off in gilts and corporate bonds has been particularly acute thanks to heightened political instability, the origins of which we have covered thoroughly in recent briefings. Yesterday, headlines delivered enough optimism […]
