Post-meeting leak not too relevant for now – ING

The European Central Bank cut rates by 25bp yesterday, and the accompanying communication fully matched expectations, ING’s FX analyst Francesco Pesole notes

EUR/USD can easily head below 1.030

“The Governing Council retained a meeting-by-meeting, data-dependent approach but also reaffirmed its dovish bias on the back of optimistic disinflation expectations and a grim growth outlook. Unlike the Bank of Canada, which on Wednesday had strictly tied future cuts to US trade policy, the ECB seems to be heading to lower rates regardless of Trump’s tariff plans.”

“The most interesting development was probably the leak to media that the Governing Council will drop the ‘restrictive’ reference to interest rates when it cuts rates again in March. That could be read as a moderately hawkish signal as things stand now, but it needs to be weighed against the new assessment on the neutral rate. Some hints on that will be given on 7 February when the ECB will publish a note on R*. For now, the ECB in-meeting and out-of-meeting communication has simply been too dovish to justify a rethink of dovish expectations.”

“EUR/USD will anyway continue to follow the tariff-driven swings in the dollar. Should Trump impose tariffs on Canada and Mexico by tomorrow, we think EUR/USD can easily head below 1.030 on the back of USD strength and greater tariff risk could be embedded into the euro.”