The ECB’s Limited Options
It's no surprise to see tight trading in capital markets ahead of the ECB meet on Thursday and especially since the U.S.'s most influential economic release, the monthly nonfarm payroll (NFP) report for May, is due on Friday.
In any event, a move is expected by the ECB tomorrow at its scheduled rate-setting meeting, but how aggressive it will be is anyone's guess. No matter what, the ECB Governing Council are required to be firm, and bank officials must walk away giving the market a perception that they are not done; that any interest-rate cut this week will not necessarily be the final one. Otherwise, and very quickly, the ECB will lose a fair bit of street credibility. Thus far, the market's assumption is that ECB chief Mario Draghi will probably reiterate his commitment to keeping borrowing costs at present or lower levels. And though the May NFP is expected to be less spectacular than last month's tally, most economists expect solid returns. That could easily muddy the waters for the ECB's policymakers.