Eurozone market update: Another 25bp cut is already baked into the price

Matthew Ryan, CFA Ebury

The common currency has clawed back some ground on the dollar in the past couple of trading sessions, having dipped below the 1.02 level on Monday for the first time since the run to parity in late-2022. There has been no domestic data of note, and the news that we have had has been euro bearish, suggesting that the move in EUR/USD has been driven almost entirely by global and US factors.

Communications from European Central Bank members this week have been on the dovish side. Chief economist Lane warned yesterday that inflation could stay too low if interest rates were to stay high.

Speaking this morning, fellow member of the Governing Council de Guindos said that the disinflation process was well on track and that further cuts were the bank’s baseline.

We are only a couple of weeks away from the next ECB policy decision, which doesn’t really leave enough time for incoming data to change the mind of policymakers.

Another 25bp cut is already baked into the price, with policymakers likely to stress that more rate reductions are on the way at subsequent meetings.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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