The ECB decision is generally positive for European assets: there is a pressure factor on the Euro, the international media say. About three more stages of interest rate cuts are possible this year. Further decisions on monetary policy will depend on the macroeconomic situation and geopolitics, including data on inflation and the effect of previous measures.
According to ECB chief Christine Lagarde, the decision to cut rates by 0.25pc was unanimous. The “0.5 p.p.” option was not discussed at all. In Lagarde’s opinion, it is too early to discuss when to stop cutting rates. The decision to cut the deposit rate is based on the dynamics of core inflation, the inflation forecast and the degree of monetary policy transmission to the real economy.
The changes will take effect from February 5. Further decisions will depend on incoming data and will be made on a meeting-to-meeting basis. The ECB started cutting rates in June. Bloomberg experts do not expect the ECB to change them at the meeting on February 5.
On the futures market there are big bets that the European Central Bank will return to easing monetary policy later. On paper, it is not targeting the Euro exchange rate, but a strengthening currency suppresses the region’s export-oriented economy. The ECB, in any case, expresses its willingness to act further.
Increased speculation and the subsequent nomination of Kevin Warsh as Fed Chairman has allowed the US dollar to gain ground. This ex-FOMC official has shown himself to be hawkish in the past. Markets saw in his possible appointment a reduction in the risks of the central bank losing its independence and returned to the fundamentals for a while.
The US dollar rose on Friday on the back of these expectations, but is still on track for a second consecutive weekly decline due to growing uncertainty over the Trump administration’s economic policies.
