Larger Fed cut puts October in play for ECB
Sept 19 (Reuters) -The Federal Reserve has kickstarted its easing cycle with an outsized 50 bp cut, which is its first since 2007. In turn, this increases scope for the ECB to deliver a cut at its October meeting.
As it stands, markets are pricing a one-in-three chance of an ECB rate cut next month. Should the upcoming PMI data surprise on the downside, however, it is not hard to imagine this rising to a 50/50 chance.
While ECB President Christine Lagarde appeared to raise the bar for additional policy easing next month, market expectations can change significantly, as we have seen with the recent shift in Fed pricing. Therefore, when assessing the euro zone’s anaemic growth outlook any shifts in ECB pricing are likely to be dovish, not hawkish.
Recall that source reports have conditioned an October rate cut on a significant negative growth surprise between now and the next meeting. In turn, should we see the latest PMIs miss expectations – due Sept 23 – the likely increased risk of an ECB cut next month could pose a threat to euro longs.
For more click on FXBUZ
ecb watch https://tmsnrt.rs/3Bav2R8
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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