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ECB meeting - a slight adjustment to rates guidance

ECB meeting - a slight adjustment to rates guidance                                                 

  • EUR: The ECB overnight, makes no changes to rates, PEPP, APP or liquidity policy as expected but guidance is updated to reflect the new definition of price stability - “until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target”.      

  • EUR: The meeting is largely geared to translating the ECB’s recent Strategy Review outcome into actual policy decisions.  The reformulated forward guidance on interest rates however, remains very close to that enacted before while the policy stance is not altered meaningfully either, meaning that policy normalization will not commence until such time as inflation dynamics are credibly on their way to the ECB’s objective being met. The focus remains on a combination of a backward-looking component (underlying inflation rising at a pace consistent with 2% headline inflation) and a forward-looking component (the ECB believing that this rise is persistent, as reflected by inflation forecasts at or above 2%).

  • EUR: In simple language, this means that the ECB will maintain present or lower rates until inflation is at 2% well ahead of the end of the forecast horizon (currently the end of 2023, though this will change to 2024 in December), and notes the possibility of moderate inflation overshoots. But these changes are modest as markets are only pricing a hike at some point in 2024 and inflation remains subdued.  Therefore, the immediate market implications are limited but the meeting reinforces the ECB’s position as one of the most dovish central banks (together with the BoJ), which likely points to EUR weakness against risk/ high-beta currencies once risk sentiment overcomes the Delta variant. The focus now shifts to the FOMC meeting next week and ECB’s guidance for asset purchases into Q4 (likely to be delivered at the ECB’s September meeting).             


Data releases overnight                           

  • USD: US initial jobless claims rise for the week of July 17 to 419k, compared to a revised 368k for the prior week. Meanwhile, continuing claims dip the week of July 10 to 3236k from an upwardly revised 3265k the prior week. This is the third week of declines in continuing claims, although this week’s drop is smaller than seen in the prior two weeks.  The rise in initial claims is noted but Citi analysts however do not think that the rise is concerning given that it likely reflects issues related to seasonally adjusting shifts in auto manufacturing schedules.         

  • USD: US existing home sales rise to 5.86 million in June from a downwardly revised 5.78 million in May. This is in-line with the consensus forecast of 5.90m but below Citi analysts forecast for 6.05m and implies a 1.4%MoM increase in the level, compared to consensus expectations for a 1.7%MoM rise. Prices also continue to rise, with the median single-family house price up 1%MoM SA (3.9%MoM NSA). Y/Y price increases though are flat at 24%, but it remains too early to tell if this metric has peaked. Supply remains extremely tight and is likely the biggest driver behind the push higher in prices currently at 2.6 months at current rate of sales. A market with less than 5 months’ supply is typically considered a tight market by realtors. The rise in existing home sales comes on the back of four consecutive months of declines, likely pointing to clear evidence that demand for housing is strong and not wilting in the face of record prices. Supply remains the key constraint   


Data releases Friday                            

  • EUR:  Euro area Manufacturing PMI, July Flash Forecast: 63.5 Prior: 63.4; Services PMI, July Flash Forecast: 56.5 Prior: 58.3; Composite PMI, July Flash Forecast: 58.5 Prior: 59.5 – Citi analysts estimate the flash composite PMI will likely fall slightly in July, from the 15-year high of 59.5 seen in June. This would be the first small decline in 6 months. Risks to this forecast are probably also skewed to the downside. 
  • GBP: UK Manufacturing PMI, July Flash Forecast: 62.3 Prior (Final): 63.9 – Citi analysts expect export orders to have improved once again, with new business overall still growing at near record rates. But supply disruption is also likely to have worsened. This could mean a slight moderation in the rate of input cost inflation – though the team expects  selling prices to exhibit strong ongoing growth in July with a further record high possible.
  • GBP: UK Services PMI, July Flash Forecast: 61.9 Prior (Final): 62.4 – Citi analysts expect the rate of growth of UK’s services sector to have fallen back in July. Business services may have picked up marginally, buoyed by further investment among consumer services, however exports are likely to remain a notable weak spot. The team expects these effects to hold back part of the recovery over summer, with wage pressures also likely to have grown further.

  • GBP: UK Retail Sales, June Forecast: -0.1% MM, 9.6% YY Prior: 9.2% MM, 42.4% YY; Ex Auto Fuels, June Forecast: -0.4% MM, 7.1% YY Prior: 9.0% MM, 37.7% YY – Citi analysts expect retail sales to suffer a very marginal setback in June, with further moderation also likely in the months ahead. Overall, though, the team still expects retail sales to remain elevated compared to the period before the pandemic.

  • CAD: Canadian Retail Sales (May) – Citi: -2.7%, prior: -5.7%; Retail Sales ex Auto – Citi: -0.1%, prior: -7.2% - With many non-essential retail stores remaining closed through the month of May, Citi analysts expect another 2.7% decline in retail spending, although Statistics Canada predict a strong bounce-back in June in their preliminary estimate. Goods spending generally has been very strong over the last year given sizable fiscal support, but could slow somewhat later into the summer, with consumption shifting back towards services upon re-openings.

  • SGD: Singapore CPI (%MoM) Jun: Citi -0.1, Prior 0.8, CPI (%YoY): Citi 2.3, Prior 2.4; CPI Core (%YoY): Citi 0.9, Prior 0.8 – Citi analysts see core CPI edging up by 0.1% MoM (May: 0.1%).


This is an extract from the Daily Currency Update, dated July 23, 2021. Please approach a Citigold Relationship Manager if you would like more information. For the latest updated CitiFX house views and strategy (updated every Monday) please click here -

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