Morning Brief – Rather you than me, Christine

Charles Porter
Thu 7 Dec 2023

Rather you than me, Christine

As we and the market alike have been speaking about recently, Eurozone rates are all the rage. As we highlighted yesterday, the path for rate cuts next year has already captivated the market with easing being forecasted as early as Q1 2024. As we approach the Christmas period, we must question whether there remains a likely course for the market to arrest the present decline in the Euro. The ECB decision due next week would of course be the most likely candidate. However, following that dire inflation report last week, there is surely little to no hope that the ECB and its president Christine Lagarde have what it takes in store to convince the market that rate cuts are not just around the corner. 

Lagarde will deliver the decision next week published by a disunited governing council. The attitudes held by members within the rate setting committee vary from those with an appetite for additional immediate monetary tightening through to those who have already been calling for rate cuts. Alongside the weak inflation report for November, the Eurozone has the dual challenge of sluggish consumer and business confidence. The reality of the Eurozone economy could clash with the President’s intended message for the ECB should a more hawkish image be presented at next Thursday’s decision.

Short Euro positions have dominated recent market movements. Whilst the increasingly number of bets against the Euro could eventually trigger a short covering event, calling the bottom of the current trend seems to be premature. Given the forces undermining GBP at present, we should be reminded that failing to call time on the Euro’s decline is far from an endorsement of GBPEUR. Other Euro crosses including the Canadian, New Zealand and Aussie Dollar pairs are likely to exhibit the Euro’s decline more explicitly. 

Discussion and Analysis by Charles Porter

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