Monica Defend comments on today's ECB meeting

The ECB avoided surprising the market by announcing the first rate cut of the cycle. Recent Eurozone inflation data indicate that there is no need for the central bank to cut again at its next policy meeting, in July, but we think another easing could be delivered in September.

The real question is how much the ECB can diverge from the Federal Reserve. We believe the scope for such divergence is limited since emerging signs of a US slowdown will give the Fed scope to ease.

This is our base case and means that we think the risk of importing inflation will be minimal. However, any policy divergence that lasts for a while could have spillover effects in the FX market.