ECB will be somewhat less dovish - BBH

Analysts at BBH note that sandwiched in between the ADP estimate and the US jobs data, the ECB meets today and with the euro near the lower end of its range, falling for four of the past five weeks, the pain trade is that the ECB will be somewhat less dovish.  

Key Quotes

“The signal could be a change in the forward guidance about rates remaining at current levels or lower.  The phrase “or lower” could be dropped, some believe, in recognition of the solid growth (above trend) and rising price pressures.”

“However, this does not appear to us to be the more likely scenario.  Core inflation is stable in the trough (now 0.9%, after bottoming at 0.6%).  However, the ECB cannot be confident that energy prices, and to a lesser extent some weather-related increase in some fresh vegetable prices, will fade in the coming months, leaving a return to disinflation in its wake.  This idea may deter the ECB's staff from lifting their inflation forecasts very much.”

“Also, the ECB will be loath to take measures in the presently charged environment that could be destabilizing.  Comments from officials show no strong urgency.  The market is doing some of that work already in the sense that outside of a few exceptions, like Germany and the Netherlands, have seen short-term interest rates over the past month.”