What to expect from ECB if global inflation bottomed like this?
First, don’t blame the EUR for the likely 0.2%pt revision in EMU inflation forecast by ECB: it’s almost back to 1.36, where the March ECB staff projections were based on. As long as inflation revision is not larger than 0.2% pts, and only for up to 1Y horizon, the EUR rates and EUR should be supported.
Otherwise, a “package” delivery from ECB is broadly expected: a corridor rate cut by at least 10bp, Funding for Lending, extension of liquidity provision...EONIA 1y1y at just 7.5bps, and could be even argued that QE expectations have also been reflected in the recent fall in EUR yields.
