Euro Rate Today: No Surprises as ECB Rate Cut Meets Expectations

September 13, 2024 - Written by John Cameron

STORY LINK Euro Rate Today: No Surprises as ECB Rate Cut Meets Expectations

The ECB interest rate decision was in line with strong expectations and had been fully priced in which limited the market impact and the Pound was unable to benefit.

The Pound to Euro (GBP/EUR) exchange rate dipped to 1.1825 before recovering to show marginal losses at 1.1840.

Danske Bank FX analyst Kirstine Kundby-Nielsen expects the UK economy to out-perform; "If we look at the PMIs we continue to see downside surprises for the euro area whereas you look at Britain and there are continued top side surprises."

She expects only one further Bank of England rate cut this year and added; "That will play an important role and is set to support the pound as the ECB and Federal Reserve look set to lower interest rates more aggressively.”

The bank expects GBP/EUR to strengthen to 1.2050 on a 3-month view.

The ECB cut the deposit rate by 25 basis points to 3.50% at Thursday’s policy meeting which was in line with consensus forecasts.

The bank also announced that there would be a narrowing of yield spreads for the other reference rates.

The main refi rate, therefore, was lowered by 60 basis points to 3.65%.

The bank’s core inflation forecasts were revised slightly higher.

There was no specific guidance from bank President Lagarde as she insisted that decisions would be data dependent.

According to ING; “we expect the ECB to eventually step up the pace of further rate cuts. Not this year, but next year. Why not this year? Given that the ECB’s track record of predicting inflation on its way up is rather weak, the ECB will want to be entirely sure before engaging in more aggressive rate cuts.”

MUFG commented; “A stronger signal for an October cut would be needed to trigger a bigger euro sell-off.”

As far as the UK is concerned, the latest RICS housing index improved sharply to 1 for August from a revised -18 previously which was well above consensus forecasts of -17, and the strongest reading since October 2022.

According to chief economist of the RICS, Simon Rubinsohn; “The latest survey captures an improvement in sentiment over the past months, after a modest decline in mortgage rates, with buyer interest improving, albeit from a relatively low base, and stock levels edging up.”

Markets continued to debate the outlook for interest rates.

According to MUFG; “We do not expect the BoE to cut rates again until the November MPC meeting, but there is an increasing likelihood that the BoE could deliver back-to-back cuts in November and December that could trigger some reversal of pound strength if the BoE shifts to a faster pace of cuts later this year.”

UBS commented on next week’s policy decision; "we expect the majority of the MPC to vote in favour of keeping rates on hold next week with a 7-2 vote split."

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TAGS: Euro Forecasts