Home Daily Commentaries Eurozone inflation expectations hit three-year low

Eurozone inflation expectations hit three-year low

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Monday 30 September, 2024

Daily Currency Update

In Europe, consumers have lowered their inflation expectations to the lowest level in almost three years, indicating that the ECB could be nearing success in controlling prices. The Consumer Expectations Survey measures household confidence in the ECB’s ability to reduce inflation to their 2% target, which in turn affects their spending, saving, and wage demands.

Last week, there was very little economic data from the UK, so the Pound’s movement was driven by monetary policy expectations. Market participants now anticipate the Bank of England will lower rates by just 25 basis points in the two remaining council meetings this year. The bank began policy normalisation by cutting rates by 0.25% in August but left rates unchanged at its last meeting.

In the US, Treasury yields and the Dollar fell, while the Dow Jones reached a record high following softer-than-expected PCE inflation data released on Friday. This report increased expectations for a significant 50 basis point rate cut by the Federal Reserve at their November policy meeting. The Federal Reserve’s decision to push for a more aggressive 50 basis point cut in August has so far been supported by personal income and spending data.

Key Movers

The Euro has rallied 4.8% against the Dollar, reaching its highest level in a year due to investor expectations of steep rate cuts by the Federal Reserve. However, during the same period, it has lost 1% against the Swiss Franc and nearly the same against Sterling. France has a new government, and while there is some political uncertainty and a fiscal deficit above the ECB’s 3% limit, these factors could contribute to a challenging environment for the Euro.

The Pound edged lower on Friday but remains at an almost three-year high against the Dollar. Increased risk appetite following China’s stimulus plan and monetary policy divergence between the UK and US is also providing support for the Pound. However, the rally may prove short-lived if expectations for a 50 basis point rate cut by the Federal Reserve are misplaced. Markets will now look to newly elected Finance Minister Rachel Reeves’ first budget on 30th October.

St. Louis Federal Reserve President Alberto Musalem said on Friday that the Federal Reserve should begin cutting interest rates “gradually” following the larger-than-expected 50 basis point cut in September. However, he added that if the economy begins to show signs of contraction, “then a faster pace of interest rate cuts may be appropriate”. Markets today will look ahead to a speech by Fed Chair Jerome Powell.

 

Expected Ranges

  • GBP/USD: 1.3355 - 1.3405 ▼
  • GBP/EUR: 1.1960 - 1.2015 ▼
  • GBP/AUD: 1.9280 - 1.9335 ▼
  • EUR/USD: 1.1140 - 1.1180 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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