Euro loses ground post ECB meeting

The euro is lower following yesterday’s ECB meeting, which saw the market ramp up expectations for an April interest rate cut, trading at around $1.0830 and 85.3p against the dollar and sterling respectively this morning. GDP data in the US were stronger than expected, providing some support for the dollar, which has strengthened to around $1.2690 to the pound.

Government bonds rallied post the ECB meeting, with yields around 5-10bps lower on the day led by the short-end of the curve, while equity markets had another positive session with both European and US stocks gaining around 0.5%

The ECB left its key interest rates unchanged following its latest meeting, which was no surprise. In the post-meeting press conference, Christine Lagarde said dis-inflation is continuing and that she stood by her comments indicating a rate cut is likely “in the summer”, while she didn’t push back too strongly when asked about the chances of a move in April. The market is now about 90% priced for a quarter-point cut in April, and sees the ECB lowering rates by almost 150bps this year.

The US economy grew more strongly than forecast in Q4 with GDP increasing by 0.8% q-o-q (or an annualised rate of growth of 3.3%) after expanding by 1.2% (4.9% annualised) in the third quarter. There was good news on the inflation front, notwithstanding the strength of economic activity, with core PCE consumer prices rising at an annualised rate of 2% for a second quarter running in Q4, which is line with the Fed’s inflation target.

Economic data due today include money supply and credit growth in the Euro area and consumer spending and PCE inflation (for December) in the US. We also get a preliminary estimate of GDP for the final quarter of last year in Ireland.