ECB set to wrap up the central bank bonanza this month

The central bank will be cutting rates by 25 bps today and will tee up another similar rate cut for March. I wouldn’t expect a clear pre-commitment to the latter but it will be something close to that at least. ECB president Lagarde should reaffirm that if things continue down this trajectory, then another rate cut in March is the “right move”.

And that should pretty much sum up how things will play out for the ECB today.

The disinflation process is still facing a couple of bumps along the road but with a weakening economy, policymakers have to spin the narrative to fit the pieces all together. And that means talking up progress in the battle against inflation while acknowledging softer economic conditions, but not as bad to stir up stagflation worries. That unless you’re Germany I guess.

If the ECB does its job well, then the euro shouldn’t see too much impact from the key risk event today.

Traders have priced in ~96% odds of a 25 bps rate cut today and ~46 bps of rate cuts in total for the January and March decisions. That’s pretty close to saying that it’s more or less fully priced in.

This article was written by Justin Low at www.forexlive.com.