A glimmer of (European) hope
The ECB has made significant progress in cutting rates towards an accommodative level. The Eurozone saw evidence of cooling inflation much sooner than many economies and has been able to respond accordingly, cutting the deposit rate to 2%. The ECB will meet again this Thursday to publish its latest monetary policy decision. Thanks to recent data, there is a small glimmer of hope of an improving growth outlook in Europe. That has been led mostly by Germany which has seen improving sentiment-based data, as evidenced by the recent IFO survey.
One reason why markets may start to find optimism in the outlook for Eurozone growth is because of just how depressed that outlook has looked over the past 12 months. Despite an initial increase in growth expectations following the announcement of refreshed fiscal plans for Germany in March, expectations have stagnated since then. Despite some regional progress, the political situation in France is of course creating disturbances to the region’s overall attractiveness to investors.
As a result of the substantial progress made by the ECB in cutting rates beyond neutral territory, the central bank is not expected to make any adjustments to its key interest rates this week. Whilst the Pound remains focussed on the fast-approaching November budget, EURGBP has been able to make progress higher. Sticky inflation had kept the Pound bid amidst expectations the Bank of England would have to keep rates within restrictive territory. With UK inflation undershooting at the last print, Euro-sellers may be in store to obtain further value.
Discussion and Analysis by Charles Porter
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