In Europe by contrast, central bank officials struck a more dovish tone on Monday, with several European Central Bank (ECB) Governing Council members intimating the possibility of earlier-than-expected interest-rate cuts.
ECB Member Fabio Panetta said that inflation was quickly falling to target and therefore there was a "consensus emerging" for a rate cut. His comments increase the probability of a rate cut in June – or even earlier. A rate cut in April would be bearish for the Euro as lower interest rates attract less flows of foreign capital.
ECB Chief Economist Philip Lane said on Monday that he was “confident” wage inflation was "on track" to falling to a level consistent with the ECB meeting its 2% inflation target. Lane also said that at that point the ECB could start reversing its interest rate policy.
If anything, the widening gap between what Fed speakers are advocating and what ECB officials are saying should be pushing EUR/USD lower. However, it is possible that last week’s sell-off has already priced the Fed-ECB divergence.
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