What are the expectations going into the ECB meeting tomorrow?
The key thing thing to watch out for in tomorrow's meeting will be what the ECB decides on its PEPP stimulus, as it is due to run out by the middle of September or October at its current pace. Here are what some firms are forecasting (h/t @ Adam Linton):
Nomura
A €500 billion increase, no duration extension i.e. until end of this year.
Danske
A €500 billion increase, extension to the middle of 2021. ING had the same view here.
Morgan Stanley
A €500 billion increase, outside chance of a €1 trillion increase.
UBS
A €750 billion to €1 trillion increase, but at the July meeting.
It is tough to make sense of stimulus measures these days as traditionally they tend to weaken a currency, but in unprecedented times they offer a more supportive factor instead.
The initial reception by the market to the PEPP stimulus has been positive, with the main point being that it allowed for the closing of the yields spread in the bond market.
In that lieu, one can expect the ECB to take a more proactive approach and calm the market sooner rather than later i.e. deciding to act in June to communicate an expansion of its PEPP stimulus - in size and perhaps duration as well.
That is likely to give investors a broader sense of relief and relax financial conditions a little more, allowing for the yields spread to at least not blow up again.
As such, that should be a somewhat supportive factor for the euro. But for the currency itself, a lot will also depend on the communication and language by ECB president Lagarde tomorrow with the central bank set to release its latest macroeconomic projections as well.