EUR: ECB now in ‘gut feeling’ phase – ING

Bundesbank president Joachim Nagel was asked on two separate occasions during his stay in Washington whether he would consider a 50bp cut in December, and both times, he refrained from explicitly pushing back, ING’s FX analyst Francesco Pesole notes.

EUR/USD is back above 1.0800

“This is a perfect case in point in the latest (substantial) shift in the ECB’s communication: Nagel is one of the most hawkish members of the Governing Council and would have probably answered with a clearer ‘no’ only a month ago. The ECB has shifted from a data-based to a ‘gut feeling’ approach, with much greater emphasis on growth sentiment.”

“Yesterday’s PMIs weren’t as bad as expected in Germany but were below consensus in France and still in contraction territory for the eurozone as a whole. One aspect of this shift to a ‘gut feeling’ approach is that the US election can now have a greater bearing on the ECB’s December decision. A Trump win and associated tariff risks could tilt the balance to a 50bp cut unless data firmly suggests otherwise.”

“Today, we will hear from Governing Council member Villeroy and take a look at the September inflation expectations figures published by the ECB. EUR/USD is back above 1.0800, but we doubt there is much more room for a rebound. A wide short-term rate gap and the imminent US election risk still point to a short-term move to the 1.0750 area.”