Economic Update
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ECB poised for second rate cut this year
5 minute read09 September 2024
EUR
This week marks the beginning of the latest round of interest rate decisions, with the European Central Bank (ECB) poised to cut rates for the second time on Thursday. The Bloc’s central bank is expected to cut its refinancing rate from 4.25% to 4%, likely making it the most significant market event of the week. After cutting rates in June for the first time since 2019, this second cut could indicate a continued trend of quantitative easing.
It is expected that Germany’s CPI release on Tuesday will remain unchanged at 2%, which is in line with European targets and could support a greater likelihood that the ECB will cut rates on Thursday. The upcoming news has kept the euro rangebound against the pound and US dollar over the last couple of weeks. GBP/EUR still sits close to a 2-year high experienced during the summer despite EUR/USD having just come off a 14-month high.
GBP
GBP/USD has also been at the highest levels since 2022. The dollar has suffered recently owing to forecasts that the US Federal Reserve is looking to cut interest rates next week on the 18th, possibly by up to 50 basis points. The very next day the Bank of England has its interest rate decision, with speculation on whether another cut or a pause is more likely.
Tuesday’s UK unemployment figures could give further insight as numbers are set to drop marginally from 4.2% to 4.1%. Should figures come in as expected, it will reduce the chances of a cut as the economy is in a stronger position to keep interest rates higher for longer to tackle inflation.
Additionally, the UK’s GDP figures are set to be released on Wednesday morning. Following August’s fairly dismal 0.0% reading, economists are anticipating economic growth to be announced. Wednesday will be eventful for the US, with Democratic candidate Kamala Harris and Republican frontrunner Donald Trump entering their first televised presidential debate. This is followed by the US CPI release which is predicted to see inflation drop from 2.9% to 2.6% year-over-year, likely solidifying an upcoming interest rate cut. The week finishes on a quiet note with just the Michigan Consumer Sentiment on Friday. Current figures see a slight rise to 68, where anything over 50 represents growth and positivity. Considering that this is the general public’s view on the economy and spending, this is a very bullish prediction, which heavily contrasts with the market view of an economic slowdown in the US. Despite suggestions of a recession, which have kept the stock market lower in recent weeks, these claims may be exaggerated. We may see USD weakness continuing into next week, with the probability of either a 25bps or 50bps cut being the main influencing factor. USD
This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.
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