Via a Commerzbank note previewing the European Central Bank meeting decision due on Thursday.
Analysts at the bank say that following the the ECB signalling a continuation of rate hikes for today's meeting at its previous meeting, "the ECB is likely to find it difficult to move to a less explicit forward guidance without the market initially seeing that as a dovish signal."
But Commerzobank says since that meeting signs have accumulated that the ECB too is no longer able to hike on autopilot:
- analysts point to signs of tighter credit conditions in the ECB's Bank Lending Survey published earlier this week
- and renewed signs of an economic slowdown in Germany
These, says Commerzbank, should soon dampen ECB interest rate optimism. Adds that the ECB is probably facing a bigger communication challenge than the Fed.
And concludes with this, which may (well, is) be good for FX traders:
- That also suggests a higher risk of it ‘going wrong’ – i.e. the increased likelihood of undesirable exchange rate volatility.
ECB is at 1215 GMT (0815 US Eastern time) with European Central Bank President Lagarde's news conference following a half hour later.
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