The European Central Bank is due to cut interest rates later today, but by how much is the question. Markets have majority priced in a 25 basis point cut, which is the more conservative outlook following the slight increase in inflation last month, if expected we could see limited movement in the Euro following the announcement.
A small percentage of traders have priced in a more aggressive move from the ECB with a 50 basis point cut, in the event that, that’s the case, it would leave the Euro subject to further downfall.
Across the pond, the US inflation release shows it is firmly rooted above the FED’s target of 2%, posting 2.7% as forecast. Despite the numbers, no real readjustments were made in pricing a rate cut from the FED next week, with markets suggesting the figures will not prevent a cut.
Core CPI has now been running at an annualised rate closer to 4% than 2%, for a fourth consecutive month, which is something the policymakers shouldn’t ignore especially with the Federal Reserves decisions are heavily data driven. Comments following the decision next week may indicate plans heading into the New Year.
Perhaps when Trump enters office, it may alter the way the cutting cycle continues.
Oakleigh Exchange Partners.