Summary:‍

• Trump and the start of his trade war have dragged the ECB into delivering a 25bps cut on Thursday, underscoring the reactive nature of the Lagarde ECB. Before the tariffs, the doves would have been perfectly happy with holding fire in exchange for a June cut and assurances that more cuts would be possible;
• The elephant in the room is euro strength, which is too much of a risk for both growth and inflation. Since late February, the euro is up ten percent versus the dollar and six percent on a trade-weighted basis. However, the ECB wants to avoid provoking Trump. President Lagarde will only reluctantly comment on the exchange rate during the presser;
• The undertones of the press conference will point to another cut in June. But Thursday’s meeting won’t qualify as a dovish cut. That would require the ECB to dangle the prospect of a stimulative monetary policy stance, which it won’t do because it doesn’t have the nerves to pull it off.