Euro could weaken on talk of conditions for a cut

It is highly unlikely the gentlefolk of Frankfurt will decide to cut the ECB’s main refinancing operations rate from 4.5% at the meeting. Current market expectations are for the first interest rate cut to come in June. 

According to analysts at ING bank, what is more likely is that the bank will clarify the economic conditions that would prompt a cut. Such talk will probably have a slightly negative impact on EUR/USD, though it is not seen breaking below 1.0800. 

“President Lagarde may start laying out the conditions for easing policy. That may be perceived as slightly dovish, meaning a softer EUR and a re-flattening of the money market curve are tangible risks.” Says Benjamin Schroeder, Senior Rates Strategist at ING. 

February inflation data for the Eurozone showed a decline to 2.6% from 2.8%. This is not far from the ECB’s 2.0% target, however, core inflation remains sticky at 3.1%, notes FXStreet’s Yohay Elam in his preview, suggesting persistent base effects will act as a restraint on the ECB. At the same time, flatlining growth in the region is a compelling counter-reason for the ECB to lower interest rates