Euro: Fed and ECB policy outlooks in focus - Danske Bank

Danske Research Team highlights that September FOMC minutes reinforced expectations of another Federal Reserve rate hike by year-end, as policymakers remain concerned about upside inflation risks. Meanwhile, rising European government bond yields and upcoming ECB meeting minutes remain in focus, with the bank expecting the ECB to maintain a tightening bias despite softer rhetoric from policymakers.

Fed and ECB tightening outlooks remain in focus

"In the US, the September FOMC minutes contained no major surprises. All participants supported the 25bps rate hike, while most saw another hike as likely appropriate by year-end, supporting our view of a further hike in December."

"Almost all participants viewed inflation risks as tilted to the upside, while labour market risks were broadly balanced. The minutes also highlighted solid economic momentum, with AI-related investment supporting business investment. Markets reacted modestly, with a slightly lower probability of an October hike."

"There was a renewed rise in European government yields yesterday led by France and we saw a bearish steepening which is "consistent" with the increased government spending financed by debt. US yields initially rose, but later in the day declined some 5-6bp. There was strong demand at 10Y auction, but it is difficult to see the long end rally significantly given all the supply. Tonight we the 30Y auction where the Treasury will sell USD 22bn. "

"The ECB will release the minutes of its September monetary policy meeting, offering insight into the Governing Council's (GC) discussions. Although Lagarde's emphasis on energy prices at the press conference prompted a strongly hawkish market reaction, subsequent comments from GC members have softened that tone. Even so, we expect the minutes to retain a bias towards further tightening."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)