ECB remains cautious – UOB

According to FX Strategists at UOB Group, the ECB should keep its cautious stance at the June meeting.

Key Quotes

“Overall, the ECB did a good job in acknowledging improvement whilst remaining cautious. Draghi was generally more optimistic surrounding the outlook for growth and he stated that the risks to the outlook had moved closer to balance whilst the downside risks have diminished. He also expressed optimism surrounding a range of growth indicators and pointed to the strength of recent PMI reports. Nevertheless, he still described risks as being tilted to the downside and that there were important areas of fragility within the Eurozone economy. He also stated that there was agreement that risks are still tilted to the downside”.

“We think that with the evidence of a recovery in underlying inflation still unconvincing, the last thing the ECB wants is a premature tightening of financial conditions. The ECB could change its forward guidance on policy rates at the meeting in June, when it will have updated macroeconomic projections. Also, by the June meeting, France will have elected its new president – a win for Macron, as is likely, would remove the biggest political risk – offering the ECB more certainty on the political front, though risks remain in nations such as Italy and Greece. Germany will hold elections in September. Hence, we would not be surprised if the ECB chooses to stick to a more cautious approach”.