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 – Defiance
Charles Porter
Tue 12 May 2026
Defiance Yesterday’s market was defying one of two things: logic or gravity. Come to think of it, perhaps both. Take cable, GBPUSD, yesterday. The key events beyond minor data releases centred around any chatter from either side of the Iranian conflict and Starmer singing for his supper. Sing he did and tweet the President did, […]
Daily Brief – A technicality
Charles Porter
Thu 25 Jun 2026
A technicality Markets appeared to be fatigued by Trump’s Iran war before a ceasefire had even been agreed. This was evident from pricing that would have been considered complacent should the conflict have dragged on longer than it ultimately did. Now, that saga is far from over – it’s inevitable, for example, that as the […]
Daily Brief – Short-lived relief rally
Charles Porter
Tue 19 May 2026
Short-lived relief rally A tantrum in the bond market has continued to erode away at risk conditions in recent sessions. In the UK, the sell-off in gilts and corporate bonds has been particularly acute thanks to heightened political instability, the origins of which we have covered thoroughly in recent briefings. Yesterday, headlines delivered enough optimism […]
