FRANKFURT — U.S. investors will turn their attention to Frankfurt this week as the European Central Bank kicks off a big month of monetary policy decisions.
Some economists said the possibility of a U.S. Federal Reserve rate hike is one of the many reasons the ECB is expected to take a wait-and-see approach.
As the ECB Governing Council meets Thursday, predictions about U.S. interest rates fluctuate almost with every release of economic data. Most Fed watchers now don't see a rate hike until December, but some still expect to a tightening of monetary policy as early as the U.S. central bank's Sept. 20-21 meeting. The Bank of England and Bank of Japan, meanwhile, could announce additional policy easing in coming weeks. This dynamic puts ECB President Mario Draghi in a difficult position as the first central banker to take the stage, economists said.
"While officials in the U.S. are keeping a rate hike on the agenda, the timing of a possible move remains unclear and it is Draghi who has to make the first bid this month, ahead of the BOE, ahead of the Fed and BOJ," said Natascha Gewaltig, director of European economics at Action Economics. "So he won't have the benefit of hindsight this month."
Gewaltig said the ECB faces uncertainties over Europe's inflation outlook, effects of the Brexit referendum and the limits of its unconventional monetary policy. The central bank will likely take a dovish tone but remain on hold this week, weighing options like expanding its quantitative easing program, she explained.
Analysts also said the ECB may want to wait for the Fed decision later this month before announcing any new policy measures.
"It's difficult for many central banks to act before the Fed," said Nordine Naam a senior forex analyst at Natixis. "For the ECB, it could be easier to wait and to keep the ammunition."