Tapering
As the week has progressed and today’s ECB decision moves into focus, European rates have been tapering in on the 25-basis point cut consensus scenario. Less than a 5% chance of an outsized 50-basis point cut remained priced into overnight rates as of market open this morning. This adjustment will limit any potential Euro selling at 13:15 GMT today if the ECB confirms the most likely policy outcome. However, at the same time the tapering of market implied rate expectations as this week has progressed will exacerbate any potential reaction to a half-point cut which should not be ruled out.
As a cut in line with consensus is far more likely, any potential EUR selling pressure would be likely to enter the market if a dovish commentary is provided during the press conference. Commencing at 13:45, Lagarde’s presentation of the monetary policy decision could leave longer term yields vulnerable, inviting potential value destruction within the Euro. The impact within EURUSD could be all the more significant given that the longer duration portion of the US yield curve remains well supported following evidence of sustained inflationary pressure within yesterday’s CPI report.
Playing piggy in the middle, US PPI will be published at 13:30 today between the publication of ECB’s rate decision and press conference. PPI is closely watched as alongside CPI inflation it provides a near-perfect proxy for what the Fed’s preferred PCE deflator release will look like. A 0.2% month-on-month (MoM) publication today should be consistent with a 0.2% MoM reading of the PCE data next week. This could relieve some embarrassment from the Fed and pave the way to a December cut still despite strong CPI readings.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Back in business?
Charles Porter
Tue 18 Nov 2025
Back in business? Tomorrow will mark one week since the President’s signature was provided to end the longest US government shutdown in history. It is not uncommon for the legacy of a shutdown to drag on beyond its formal conclusion date because it can naturally take differing amounts of time for different departments to get […]
Daily Brief – Volatility on offer
Charles Porter
Thu 13 Nov 2025
Volatility on offer As we approach year end, traded ranges have remained relatively narrow despite significant macroeconomic themes developing. Looking ahead beyond year end, we note the options market continues to severely underprice volatility versus historical standards. Within such an environment, broader risk appetite remains constructive. As a result, the carry trade has continued its […]
Daily Brief – One in three
Charles Porter
Tue 4 Nov 2025
One in three Until recently, the market had held the probability of a rate cut at the Bank of England’s November meeting at near zero. Above-target inflation and insufficient evidence of faltering economic growth alone suggested the BoE would continue to adopt a wait and see approach. Combine that with the uncertainty of the UK […]
