Draghi keeps dovish stance to prevent further EUR appreciation

 Yesterday ECB rate decision and press conference in our view provided no real surprises. As with the BoJ, the ECB is more  confident about the threat to growth outlooks but inflation remains an uncertainty. For any adjustment, we would have  expected the ECB to have materially shifted their view on the mid-term inflation outlook. The message was around growth  positive with risk retreating “towards a more balanced configuration”. The language used around inflation was basically  unchanged. In our view, the most obvious modification was Mario Draghi's comment that no debate was held on the ECB's  monetary policy stance, which changed slightly from the perceptions in March that early discussions on possible exit  strategies were had.

 To keep everything neat and tidy, Draghi undoubtedly linked any future decision on monetary policy to inflation forecasts.  Given the direction of inflation, we anticipate the ECB will be challenged with a decision to make by September, so Euro  bulls will need to wait. Clearly, the market was disappointed with Draghi’s avoidance of any suggestion of tapering in the near term. Today 1Q 2017 GDP growth data from the US should highlight marginal slowdown, yet US PCE data should be supportive of Fed expectations. With sustained accommodation from the ECB (and BoJ) and repricing of Fed interest rate path, we should see further EUR (and JPY) selling against the USD as the Fed remains the only G10 central bank in tightening mode.