ECB: Will it be exciting after all? – Commerzbank
|Of course, one can object that ‘everything has already been priced in’ – such as today's 25 basis point interest rate cut by the ECB. In fact, the market is almost 100% certain that the ECB will take action. Nevertheless, this does not necessarily mean that there will be no or hardly any movement in EUR/USD, Commerzbank’s FX analyst Antje Praefcke notes.
Risks in EUR/USD today lie on the downside
“Interest rate changes in particular can trigger short-term volatility in EUR/USD and lead to swings in the exchange rate, even if they are short-lived. The increase in volatility seems to be stronger for interest rate hikes (i.e. 2022 and 2023) than for interest rate cuts (2024). This might be due to the fact that interest rate hikes have a dampening effect on inflation, but also on the economy, which could increase uncertainty, at least in the short term.”
“Another reason may be that the ECB took 50-basis-point steps several times during the hiking cycle, but now prefers 25-basis-point steps. At the same time, meetings are also being skipped, which may further reduce uncertainty. I would rather see the trigger in a surprisingly strong concern on the part of ECB President Lagarde about further significant economic weakness.”
“I doubt whether this view can prevail in the ECB Governing Council, which is dominated by dovish members. I could imagine that concerns about the further economic outlook will prevail. Which is why I could imagine that the risks in EUR/USD today lie on the downside. And that in the coming weeks, the euro is likely to react sensitively to weak data. The first good reason would come next Thursday, should the purchasing managers' indices for October disappoint.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.