0827 GMT [Dow Jones]--All eyes are on the ECB's June policy meeting, but should they be? Deutsche Bank strategists warn that those expecting it to be a game changer could be hurtling towards disappointment. "First, the sensitivity of the euro to nominal interest rate differentials has dropped markedly over the last few months," they write, adding that, secondly, "market expectations are already running high". "Based on recent FX-rates betas, we estimate than an ECB depo cut to -10bps coupled with liquidity injections would be worth an additional 1%- 2% drop in the euro," they write. A larger impact on FX would only occur, they argue, if the ECB preannounces large scale QE, offers a large vLTRO with no strings attached or credibly commits that it's willing to take negative rates much lower. On the first two, Deutsche deems the bar for action to be very high. On the last, they doubt the ECB would be credible in committing to more negative rates given unintended consequences for the banking system.(josie.cox@wsj.com)
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May 22, 2014 04:27 ET (08:27 GMT)
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