The ECB policy meeting is taking place against a more urgent backdrop - preview (but little EUR impact?)
The European Central Bank meet on Thursday 29 October 2020, statement is due at 1245GMT
Via Credit Suisse, in summary, bolding mine:
- Rising Covid numbers across Europe and tightening of restrictions in countries such as France, Spain and Italy will provide a more urgent backdrop to this week’s ECB rate decision.
- Ahead of the US election, however, we suspect that the bar for ECB surprises that meaningfully affect EURUSD will be high.
- The recent successful raising of funds under the SURE program, and the prospect of imminent disbursement to states facing renewed Covid stress also adds to the reasons for expecting no further accommodation from the ECB this week.
- The one area where markets might see potential for new announcements is on the TLTRO front, where a cut in the rate at which banks can borrow long-term (currently at -1.00%, below the depo rate at -0.50%) is a possibility, in the light of the reduced demand for credit that emerged from the Q3 ECB Bank Lending Survey.
- The FX implications of such move are however likely limited, in absence of an actual cut in the depo rate – a fairly remote possibility at this moment, in our view.
- Questions about FX strength are likely to emerge in the Q&A session, with EURUSD roughly in line with where it was trading at the time of the 10 September ECB rate decision: this time President Lagarde may point to the stronger tone of Asian currencies as a new factor relieving upside pressure on EUR on a trade-weighted basis. Markets might view any statements in that direction as undermining previous concerns about FX strength that featured prominently in ECB rhetoric in September.
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