The European Central Bank decided to leave its monetary policy unchanged last week and tweak its forward guidance a bit. Simultaneously, it revised inflation forecasts down what caused some concerns when the ECB could actually strike its inflation goal. Since then,  the euro has responded quite marginally despite a meaningful divergence between the EURUSD and the interest rate differential. 

In spite of the fact that the ECB lowered its CPI projections, Executive Member Benoit Coeure seems to be joyous taking into account his comments that occurred earlier in the day. According to them, inflation is less dependent on ECB’s monetary-policy measures, which is one step in the right direction. However, he also said that inflation is still not yet enough high to start discussing tapering. 

Asked about when is right date to start tapering he said that it does’t want to give any specific dates. He added that the ECB’s policy is much data-driven and they will start discuss tapering when time is “ripe”. Grenoble-born Coeure referred to the first round of the French parliamentary elections as he hope that such outcome of the elections can support momentum of reform. The ECB’s member shrugged off the fallout of the elections in the UK and said it’s not so important for the Eurozone economies. 

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CPI (YoY) in the Eurozone and inflation expectations measured by the 5y5y inflation SWAP have been moving in tandem more or less for the past months. Source: Bloomberg

 Taking a glance at inflation expectations and CPI in the Eurozone one could argue there has been quite a relevant correlation between both metrics. However, an inflation pick-up that was caused be the Trump’s victory last year, has lost some of its momentum. Right now we’re not far away from the levels before the US elections’ final result. Given that relationship one could expect inflation in the EMU will stabilize close to current figures, barring an unexpected fall in inflation expectations. 

Keep in mind that the most relevant (possibly) market mover for the greenback may be the FED’s meeting this Wednesday.