he aggressive spread of the delta variant both globally and in many European nations means we now think that risks to the ECB’s growth forecasts are moderately skewed to the downside. While the EU’s vaccination programme should limit the need for the return to strict lockdowns, we think that the uncertainty created by the faster spreading strains may delay a full reopening.

The outcome of the ECB’s strategic review also makes the need for policy normalisation less pressing, in our view. We expect Lagarde to suggest that the bank will now look through temporary periods of above target inflation and take a patient approach to normalising monetary policy in line with its shift to a symmetric inflation target.

Ultimately, we think that it is too soon for the bank to hint at the possibility of tapering, with an announcement on that unlikely until September, at the very earliest. This would confirm to us the bank’s lagged status among the recent hawkish chorus of G10 central banks, many of which have either already begun tapering asset purchases or signalled that higher rates are on the horizon. We therefore go into the meeting viewing the path of least resistance for the euro as lower.