ECB Economic Bulletin Hints at Post-March Policy Pause

Bob Mason
Updated: Feb 16, 2023, 10:46 GMT+00:00

It was a busy start to the European session. While trade data drew interest, the ECB Economic Bulletin was key this morning.

ECB Economic Bulletin pressures the EUR/USD - FX Empire

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It is a relatively quiet day on the euro area economic calendar.  On the economic data front, trade data from Italy and Spain were in focus. Following the narrowing of the Eurozone trade deficit to €8.8 billion, the markets were looking for a similar trend to support the more optimistic economic outlook.

In December, the Italian trade surplus narrowed from €1.423 billion to €1.067 billion, while the Spanish trade deficit widened from €3.31 billion to €4.51 billion.

ECB Economic Bulletin Signals Possible ECB Pause

However, the ECB Economic Bulletin drew greater interest this morning. Key points from the Economic Bulletin included,

  • The ECB will continue to raise interest rates at a steady pace and maintain them at a level that is sufficiently restrictive to bring inflation to target.
  • Accordingly, the ECB plans to raise interest rates by 50 basis points in March and then decide the appropriate interest rate path.
  • Beyond March, future rate decisions will be data-dependent, and the ECB will follow a meeting-by-meeting approach.
  • Price pressures at the global level remain elevated but may have peaked.
  • After a marked slowed down in euro area growth in Q4, the ECB expects euro area growth to remain weak in the near term.
  • Headwinds included the war in Ukraine and subdued global activity.
  • Rising wages and the decline in energy price inflation should ease the loss of purchasing power that should support consumption.
  • The euro area has proved more resilient than anticipated and should recover in the coming quarters.
  • As the energy crisis becomes less severe, governments need to start rolling back measures in line with the fall in energy prices. Failure to do so could drive up medium-term inflationary pressures and force the ECB to respond.

ECB Monetary Policy Impact

There were no material surprises following the January bulletin. In January, the ECB Economic Bulletin delivered a less gloomy outlook, pointing to a shallow and short-lived euro area economic recession. Economic indicators from the euro area have supported the more optimistic economic outlook, with the Eurozone private sector returning to growth in January, according to prelim figures.

Todays bulletin reaffirmed the ECBs January position and supported the current monetary policy outlook. However, the Economic Bulletin also left the door open for the ECB to hit pause after the March meeting.

With plenty for the markets to consider, investors need to monitor ECB member speeches. ECB Executive Board Members Fabio Panetta and Luis de Guindos will speak today, with ECB Chief Economist Philip Lane speaking late in the day. We expect comments from Philip Lane to garner more interest.

EUR/USD ECB Economic Bulletin Response

Ahead of the ECB Economic Bulletin, the EUR/USD fell to an early low of $1.06831 before rising to a high of $1.07226.

However, in response to the ECB Economic Bulletin, the EUR/USD rose to a high of $1.07128 before falling to a low of 1.06889.

At the time of writing, the EUR/USD was up 0.19% to $1.07087.

ECB Economic Bulletin tests EUR/USD support
160223 EURUSD Hourly Chart

Next Up

While ECB Executive Board member commentary needs consideration, it is a busy day on the US economic calendar. Following the US CPI Report on Tuesday, investor focus shifts to US wholesale inflation numbers for January and the weekly jobless claims figures.

With the markets expecting the Fed to push rates above 5%, softer inflation numbers and a spike in jobless claims could test the theory.

Other stats include housing sector numbers and February Philly Fed Manufacturing PMI numbers. An unexpected slide in the headline PMI and a jump in prices paid would influence market risk sentiment.

FOMC member speeches will also need consideration, with members Loretta Mester and James Bullard speaking today.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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