The European Central Bank’s (ECB) interest rate decision and press conference will be the key event of the day and it could trigger market volatility. The ECB is anticipated to hold its policy rate steady at a record 4.0% and investors will turn their attention to the ECB press conference and ECB President Christine Lagarde’s speech. Any comments by Lagarde regarding early rate cut expectations or updates in the ECB’s forecasts could spark volatility in the euro.
The ECB is not expected to cut borrowing rates before its June meeting, especially as it will wait to review wage data which will become available in May. Furthermore, the policymakers would be careful and focus on reviewing upcoming inflation data before they change their policy stance. Most market participants anticipate the first 25 basis points (bps) rate cut by the ECB to take place around June, but how many rate cuts should be expected will be dependent on the incoming data.
What time will the ECB announce its decision?
The European Central Bank (ECB) will publish its decision on Thursday at 13:15 GMT and is widely expected to remain on hold for the fourth consecutive policy meeting. The central bank will also publish its updated economic projections, which will be followed by ECB President Lagarde’s press conference at 13:45 GMT.
What do economists expect from today’s meeting?
Economists are expecting the ECB to maintain its three key interest rates steady, with the benchmark Deposit Rate at 4.0%.
The central bank may downgrade its forecasts for inflation and growth. In December, the economic forecasts showed that the ECB expected GDP to increase by 0.8% in 2024 from 1% previously projected. Headline inflation was forecast to average 2.7% in 2024 and 2.1% in 2025. The Bank had previously anticipated price growth of 3.2% in 2024 and 2.1% in 2025.
Eurostat data published on Friday unveiled that the Eurozone annual Harmonised Index of Consumer Prices (HICP) increased 2.6% in February, down from a 2.8% increase in January but higher than the expected 2.5% growth in the specified period. The Core HICP inflation dropped to 3.1% YoY in February, beating expectations of 2.9% but lower than January’s 3.3% reading.
The Eurozone’s indicator of negotiated wages increased at an annual rate of 4.50% in Q4 2023, but was lower than the third quarter’s increase of 4.70%. Up until the 23rd of May, when the indicator of negotiated wage rates is released for the first quarter, we may see Lagarde maintaining her hawkish stance. Last month, she noted: “our restrictive monetary policy stance, the ensuing strong decline in headline inflation and firmly anchored longer-term inflation expectations act as a safeguard against a sustained wage-price spiral.”
Rate cuts
Lagarde has mentioned in the past that rate cuts may start in the summer, but she also clarified that the timing of cuts was “data dependent, not time dependent.”
How could the ECB meeting influence EUR/USD?
If Lagarde reiterates the ECB’s “data-dependent approach”, pushing back against expectations of early rate cuts, the euro may strengthen against the US dollar. However, if she sounds dovish and highlights that wage pressures have eased, then the euro may drop.