By Matthew Ryan, Head of Market Strategy at Ebury International Payment Company

For many, summer is a time we relax. The ECB is ready to do the same this week as it keeps interest rates steady and keeps silent fish on its future plans.

As expected, the ECB’s Board of Directors made eighth consecutive interest rates in June, reducing the deposit rate to 2%. With inflation now limiting just above the 2% target and economic growth being sluggish, the central bank may further relax in monetary policy in the future. However, a tougher shift in the ECB’s announcements in June, coupled with increased uncertainty in commercial relationships, means that a pause this week is given.

With concerns revolving largely around President Trump’s duty proposals as well as the possible impact of US protectionism on the European economy, results in the cost of funding not being the top priority at the moment. Assuming that both sides fail to reach an agreement before the deadline expires, US duties in the European Union are expected to rise to 30% from August 1st. The problem for policy -making managers is that it is incredibly difficult to assess both whether the agreement will be reached and the seriousness of the financial blow to the duties, let alone because of Trump’s unstable and unpredictable nature.

Given this abnormally increased uncertainty, President Lagarde, who has a tendency to provide minimal guidelines for the future, has even less motivation to imply interest rates. On the contrary, she is likely to repeat her message from June when she said that politics was “in a good spot” and that the ECB was approaching the end of the “campaign” reductions. At the same time, it is unlikely to close the doors to further interest rate adjustments, especially now that the escalation of duties could have deflationary impact on the eurozone. In the ECB’s “serious” scenario, which assumes higher duties and increased commercial uncertainty, the bank expects weaker prices pressure, particularly long -term.

Even if we ignore persistent commercial uncertainty, we believe that there are no really convincing arguments on the ECB’s data to re -reduce interest rates right now, especially since its executives raised the bar for reductions extremely high at the June meeting. One could argue that the recent revalor of the common currency and the rise of global oil prices could increase the pressure on the ECB to lower interest rates. However, we believe that the impact on medium -term inflation by these factors is rather minimal and inadequate to force the bank to make decisions this week.

We do not expect that the ECB’s announcements have excessive impact on the euro this week, with Lagarde will probably remain as vague as possible and keep silent fish on the eurozone interest rates. However, with the markets currently waiting for the time of the next reduction (a decline in almost 45%in September), we could see variability if Lagarde comments are leaning in one direction or the other. We believe that another reduction from the ECB is possible, although it may be delayed within the year, unless there is a significant deterioration in trade between the EU and the US. In any case, the indications related to trade negotiations will remain in the spotlight in the coming weeks, partly due to their possible significant impact on the ECB decisions.

The ECB’s decision on its policy will be announced at 15:15 Greek time this Thursday, with a press conference 30 minutes later.