HSBC analysts report that the European Central Bank left policy unchanged but sounded slightly hawkish, citing resilient growth and signalling rates will stay on hold for some time. President Lagarde downplayed recent inflation softness and concerns about Euro strength, noting the currency remains within its average range. Combined with the Bank of England’s dovish tilt, analysts see upside risk for EUR/GBP and expects EUR/USD to be driven higher mainly by US factors.

ECB holds rates and downplays FX strength

"Meanwhile, the European Central Bank (ECB) kept rates unchanged as expected in February, but struck a slightly hawkish tone, highlighting resilientgrowth (Chart 2)."

"ECB President Christine Lagarde downplayed the recent inflationdip and signalled rates will remain on hold for some time."

"She also dismissedconcerns about EUR strength, noting FX moves are already factored into forecastsand the EUR remains within its average range."

"In summary, the BoE’s dovish tilt and the ECB’s comments on the EUR suggest some upside risk for EUR-GBP."

"However, US factors are likely to drive GBP-USD and EUR-USD higher over the near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)