EURUSD – Rebounds After Expected ECB Rate Cut
The ECB did rate cut done of 25bps and currently 4.25% from the 4.50% rate, Deposit rate came at 3.75% from 4.0% in the previous meeting, ECB is expected 2.8% inflation reading in the 2024, 2.2% in 2025 and 2.0% in 2026. Service inflation grow to 4.1% in the May month, GDP is grew by 0.30% in this Q1 2024 compared to last 2 quarters decline. Next rate cut move is not spoke by ECB President Lagarde, data dependent only. The Euro Currency moved up due to expected rate cut from one month before in all media centers and ECB members speech.
EURUSD is moving in Ascending channel and market has reached higher low area of the channel
EUR/USD sees a surge during the early New York trading session on Thursday following the European Central Bank’s (ECB) decision to cut its key interest rates by 25 basis points (bps). This move brings the Main Refinancing Operations Rate down to 4.25% and the Deposit Facility Rate to 3.75%, aligning with market expectations. Alongside the rate cut, the ECB releases its latest inflation projections, indicating an average annual core inflation of 2.8% in 2024, 2.2% in 2025, and 2.0% in 2026.
ECB policymakers had previously communicated their intent to lower borrowing rates by 25 bps, aiming to steer inflation back towards the targeted 2% rate. However, they refrain from providing specific guidance beyond June, remaining cautious amidst persisting challenges in the inflation battle.
The path to achieving the desired inflation rate faces hurdles, particularly from stubbornly high service inflation, influenced significantly by wage growth. Despite this, the Eurozone’s economic outlook has improved, with service inflation reaching 4.1% in May, the highest in seven months. Moreover, GDP growth shows signs of recovery, expanding by 0.3% after two consecutive quarters of contraction in 2023.
Regarding the interest rate outlook, ECB officials remain data-dependent, refraining from committing to further rate cuts in subsequent meetings. Financial markets currently anticipate two more rate cuts from the ECB this year.
In the broader market context, while EUR/USD rallies, the US Dollar Index (DXY) stabilizes after testing crucial support at 104.00. The rebound in the DXY follows the release of the robust US Institute for Supply Management’s Services Purchasing Managers Index (PMI) for May, which offset concerns about easing labor market strength. However, with labor market conditions showing signs of normalization and expectations for Fed interest rate cuts in September increasing, market focus shifts to the upcoming US Nonfarm Payrolls (NFP) data for May.
ECB Reduces Interest Rates for First Time Since 2019
The European Central Bank (ECB) executed a 25 basis points rate reduction, revising the rate to 4.25% from the prior 4.50%. Simultaneously, the deposit rate was adjusted downwards to 3.75% from its previous 4.0% benchmark. Forecasts from the ECB suggest inflation will register at 2.8% in 2024, dip to 2.2% in 2025, and align with the 2.0% target by 2026.
EURCHF is moving in Ascending channel and market has reached higher low area of the channel
May witnessed a notable rise in service inflation, reaching 4.1%. In terms of economic performance, GDP experienced a 0.3% increase in Q1 2024, a notable improvement following two consecutive quarters of decline. ECB President Christine Lagarde refrained from detailing the timing of subsequent rate cuts, emphasizing a data-dependent approach for future monetary policy decisions.
The Euro saw an appreciation, a movement anticipated due to extensive media speculation and public addresses by ECB officials over the preceding month.
The European Central Bank (ECB) proceeded with an anticipated interest rate reduction during its Thursday meeting, despite ongoing inflationary pressures within the 20-nation euro zone. The central bank’s key rate now stands at 3.75%, down from a previous record of 4% maintained since September 2023.
According to a statement from the ECB Governing Council, the decision to moderate monetary policy was based on an updated assessment of the inflation outlook, underlying inflation dynamics, and the effectiveness of monetary policy transmission.
In the latest macroeconomic projections, closely scrutinized by investors, ECB staff revised their annual average headline inflation forecast for 2024 upward to 2.5% from the previous estimate of 2.3%. Similarly, the forecast for 2025 was raised to 2.2% from 2%, while the projection for 2026 remained at 1.9%.
Market expectations for a 25 basis point rate cut at the June meeting were fully priced in by money markets. This marks the first cut since September 2019 when the deposit facility was in negative territory. While markets anticipate only one further reduction this year, economists polled by Reuters foresee two more cuts over the period.
Dean Turner, chief euro zone economist at UBS Global Wealth Management, suggested that while the slight upgrade to the inflation forecast was expected, the timing of the next rate cut is likely to be in September rather than July.
The ECB’s move puts it ahead of the U.S. Federal Reserve in lowering interest rates, as the world’s largest central bank grapples with U.S. inflation rates. Canada recently became the first G7 nation to cut interest rates in the current cycle, while central banks in Sweden and Switzerland have already announced their own rate reductions this year.
Eurozone Slashes Interest Rates for First Time in Half a Decade
The European Central Bank (ECB) implemented a 25 basis points rate cut, reducing the current rate to 4.25% from the previous 4.50%. The deposit rate was also lowered to 3.75% from 4.0% as decided in the prior meeting. The ECB projects an inflation rate of 2.8% for 2024, 2.2% for 2025, and reaching their target of 2.0% by 2026.
EURCAD is moving in Ascending channel and market has fallen from the higher high area of the channel
In May, service inflation rose to 4.1%. Economic data showed that GDP grew by 0.3% in Q1 2024, reversing the declines seen in the previous two quarters. ECB President Christine Lagarde did not specify when the next rate cut might occur, indicating that future decisions will depend on incoming economic data.
The Euro appreciated following the rate cut, a move widely anticipated due to extensive media coverage and speeches by ECB members over the past month.
The European Union (EU) has joined Canada in cutting its lending rate this week, marking the second major global economy to do so. The European Central Bank (ECB) announced a reduction in its main interest rate from an all-time high of 4% to 3.75%, following Canada’s decision to cut its official lending rate.
The timing of the ECB’s move coincides with EU-wide elections taking place over the next four days, with expectations that the outcome will reflect public discontent over cost-of-living pressures. Lindsay James, investment strategist at Quilter Investors, noted that while the rate cut was anticipated, it would still be welcomed by consumers and businesses across the continent. She emphasized that the ECB’s action precedes potential rate cuts by the Bank of England and the U.S. Federal Reserve, injecting much-needed stimulus into an economy facing challenges.
Central banks have maintained high interest rates over the past two years to combat rising prices, targeting an annual inflation rate of 2%. However, elevated interest rates typically hinder economic growth. Lowering interest rates is expected to stimulate economic activity by reducing borrowing costs for consumers and businesses.
Despite a slight uptick in inflation in May, rising to 2.6% from 2.4% in April across the 27-nation bloc, the ECB opted to cut rates during its meeting in Frankfurt on Thursday. This decision follows Canada’s rate cut on Wednesday, prompted by a decline in inflation to 2.7%. Additionally, central banks in Sweden and Switzerland have also reduced rates.
Katherine Neiss, chief European economist at investment firm PGIM, expressed confidence that the ECB would continue cutting rates throughout the summer or autumn. She anticipated eurozone rates to reach 3.5% or lower by the year’s end. Neiss cited sluggish economic growth, coupled with slowing inflation and easing wage growth, as justifications for further rate cuts.
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