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ECB expected to cut rates in September - TD Securities

FXStreet (Łódź) - Prashant Newnaha, Asia-Pacific Macro Strategist at TD Securities believes that Mario Draghi's recent comments suggest an intention to cut rates in September.

Key quotes

"2014 GDP and inflation forecasts are likely lowered, but there is less risk that they need to make any meaningful changes to later forecasts, which would be needed for a strong policy response."

"But for now, we think Draghi’s language suggests a rate cut, likely as a means of buying time to see more macro data and the take-up of TLTROs, as well as increasing incentives to use those TLTROs in the first place."

"So while we see EURUSD trading below 1.3000 today, the euro’s fate is likely to be decided by the statement. If we have disappointed after that, the risks are that there is little the Q&A can do in significantly reversing the disappointment."

"The two biggest risks are that Draghi disappoints with nothing, which will significantly disappoint markets and could perversely help speed up the risks of asset buying by year end, or Draghi is ready to pre-announce ABS buying to begin later in the year when the details are ready, similar to the pre-announcement of the OMT."

"But we do not think the ECB is close to announcing QE at this stage, though would look for more details in the Q&A on modalities for potential QE, which would help up handicap potential odds for use, timing, and market impact."

"For today’s ECB decision, about 10% of forecasters agree with our call for a rate cut from the ECB."

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