2026-01-14 08:30:00
- Inflation remains in a good place
- High uncertainty in the global environment does not appear to be reflected in current market pricing
- Geopolitical risks noticeably raises downside risks to growth
- We are facing a big chance in the world order with mounting geopolitical challenges
- Meanwhile, financial stability risks also remain elevated
- That as valuations are stretched in increasingly concentrated asset markets
- Banks should maintain sound solvency and liquidity positions to enable them to absorb potential shocks ahead
The key takeaway remains that the ECB is still comfortable to keep on the sidelines in terms of policy setting at the moment. And that message is well received with markets not pricing in any rate changes by the central bank for this year.
de Guindos does point out some downside risks to be mindful of but again, these aren’t something that traders or investors should get too carried away in pricing out. So while it is a bit of a warning from him, it’s not something that market players nor people at the ECB I would say, should feel all too concerned about.
As for the euro currency, it’s caught in a bit of a limbo to start the year. A rejection of 1.1800 in EUR/USD is still holding and the euro is not best placed to take advantage of any recent dollar weakness amid its own tough structural outlook.
Fragmentation in the euro area bond market and lingering political risks in France continue to undermine the euro currency’s potential as a whole.
However, the dollar has its own set of problems and that will also help to limit any downside run in EUR/USD. So, there are both pushing and pulling factors at play for the currency pair at the moment.
