As the ECB meeting takes center stage, the focus is on the potential interest rate decision. Market consensus predicts a 25-basis point cut in the deposit rate, bringing it down to 3.50%. However, there are two key aspects to consider this time, according to Commerzbank’s FX Analyst Antje Praefcke.
Key Points to Watch
One crucial factor to note is the narrowing gap between the main refinancing and deposit rates, which was adjusted in March. The central bankers are expected to reduce the marginal lending rate by 25 basis points to 3.90%. The bigger question is the future trajectory of interest rate cuts. Will the next move happen in October or December?
Experts suggest that despite inflation being close to target at 2.2% in August and economic weaknesses, the next rate cut may not occur until December. The market also reflects this sentiment, with a 40% chance of a rate cut in October. President Lagarde’s emphasis on data dependency could impact the euro’s performance.
Potential Impact on Euro
If the market interprets Lagarde’s stance as signaling a potential rate hike in October, the euro could face downward pressure. Any weaker economic data or price figures in the coming weeks could further weaken the euro against the dollar. The risks for the euro are skewed to the downside, with a possibility of losing ground against the USD.
Analysis and Implications
For investors and traders, it’s crucial to monitor the ECB’s decisions and statements closely. The potential weakening of the euro against the dollar could impact currency markets and global trade. Understanding these dynamics can help individuals make informed decisions about their investments and financial strategies.
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