EUR: Diverging ECB comments

The number of comments by European Central Bank (ECB) officials has intensified in the past few days, and so has a divergence in views expressed by different members. Fabio Panetta, the most dovish voice in the Governing Council, endorsed rate cut expectations, saying that the time for monetary easing is “fast approaching”. That unsurprisingly differs from the latest remarks by Isabel Schnabel (a hawk), who warned against cutting too early, but also from more dovish members like Mario Centeno and Pablo Hernandez de Cos, who still seem to prefer caution over dovish guidance.

Despite some voiced unhappiness from doves like Panetta, consensus among policymakers appears to be favouring holding rates should at least until April’s European wage statistics. June looks increasingly likely as the starting date for monetary easing, and markets are also buying this view with increasing confidence. We agree with a June cut, but still think markets are overestimating the ECB’s easing cycle by around 40bp by December. Conversely, markets pricing for a 125bp of Fed cuts in 2024 seems too conservative (we expect 150bp). The convergence of US and EZ rates will – in our view – be the bigger driver of a EUR/USD rally by year-end.

In line with our dollar view, though, the holding pattern that EUR/USD has shown recently may well remain the norm in the coming weeks. US CPI will be the big highlight for the pair this week, while the eurozone calendar’s main release is tomorrow’s ZEW survey out of Germany. We see some modest downside risks for the dollar this week, and think EUR/USD can find some support back above 1.0800, although a return to the 1.093/1.0950 area looks premature. On the ECB side, keep an eye on Philip Lane’s speech today.