Goldman: ECB Still On Track For April Cut, EUR Front-End Still A Buy

Goldman Sachs write “the January HICP release was slightly stronger than expected, which on the margin reduces the (already small) chance of a March ECB cut.”

• “However, we think comments from Villeroy and Nagel suggest incremental acknowledgment of the progress made on inflation, and as a result lowers the hurdle for an April cut.”
• “In addition, the surveyed data released post-ECB meeting showed both the inflation expectations in the SPF and wage expectations in the corporate telephone survey declined.”
• “We think this will add to the confidence the ECB will need to cut in April, ahead of the full release of Q1 wages. A slightly delayed start of the Fed cutting cycle - our economists now expect the first cut in May - will not be an obstacle for the ECB to ease policy.”
• “We continue to expect the significant differences in growth expectations between the US and Europe to be better reflected in pricing with a wider rate differential, especially at the front-end of the curve, provided that banking concerns in the US remain isolated/idiosyncratic.”