As universally expected, the ECB left its policy rates on hold at today's meeting. The tone of the statement was roughly unchanged, but there were some growing signs of caution on the growth and employment outlooks, and the GC appears to be looking through the recent strength in underlying inflation, TDS FX analysts note.

Rate differentials move in the EUR's favor

As universally expected, the ECB kept its deposit rate unchanged at 3.75%% at today's meeting. The ECB meeting came with little new information. President Lagarde acknowledged the ongoing progress in domestic drivers of inflation. Tactically, we favour being long in EUR duration.

Not much for the Euro (EUR) to nibble on here, leaving the price action mostly unchanged. No one was looking for fireworks today so focus will turn towards data and the outlook for inflation. Markets continue to expect another move in September. For EUR/USD, much of the focus has come from the US side, with rate differentials moving in the EUR's favor.

For now, we think the USD has lots of bad news priced in, suggesting that EUR/USD provides good entry levels to fade the recent rally. Notably, our MRSI portfolios still lean long USD in most of the key macro portfolios, except rates. Currently, the risk, equity, carry, growth, and now short-term fair value (HFFV) are long the USD.