Home Daily Commentaries The ECB is expected to lower borrowing costs by 50 more basis points throughout 2024

The ECB is expected to lower borrowing costs by 50 more basis points throughout 2024

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.

| Friday 6 September, 2024

Daily Currency Update

In Europe inflation continues to decline albeit slower than council members would like. Services inflation (Education, hospitality and culture) remains persistently high and is the principal reason core inflation has been slower to normalise towards the ECB's 2% target rate. However economists expect that inflation will normalise at 2% by mid-2025.

Conversely, the Bank of England are expected to only cut rates once this year given the strength of the UK economy. With an absence of top tier economic data the Pound' direction is being driven by interest rate expectations. The Monetary Policy Committee (MPC) have been reiterating that while trying to balance inflation with strong growth future cuts will be data dependant.

Private sector employment in the US rose by 99k in August and annual pay was up 4.8%. Markets expected a gain of 145k so this was a wide miss and drove the US Dollar lower in yesterday’s trading session. Importantly, this miss should have a significant impact on the Fed's policy outlook. Employment has taken centre stage for the Federal Reserve as inflation has fallen right back toward the Fed's 2% target.

Key Movers

The release of preliminary employment data yesterday disappointed and pushed the US Dollar lower. Bond yields also fell sharply as markets moved towards "safe haven assets". Later today we see the release of non-farm payrolls which will give a much deeper insight into the state of the US job market and in turn will affect market expectations for US interest rate cuts.

Eurozone retail sales fell 0.1% on a yearly basis and after a fall of 0.4% earlier this Summer. Market consensus was for a gain of 0.1% and this data release confirms how the Eurozone's growth is slowing. The figure had a muted impact on the single currency as markets now turn their eyes to the release of Eurozone GDP due later today.

In the UK, markets are predicting a mere 44 basis points of interest rate cuts through the rest of 2024. This is interesting because inflation is falling fast and if some MPC council members hint at disinflation it could hit the Pound rather hard especially if markets have undershot on the size and scale of rate cuts in the UK. At the moment, there is a lot of positive news priced into the Pound, so the balance of risk remains on the downside.

Expected Ranges

  • GBP/USD: 1.3150 - 1.3200 ▼
  • GBP/EUR: 1.1835 - 1.1880 ▼
  • GBP/AUD: 1.9550 - 1.9600 ▼
  • EUR/USD: 1.1090 - 1.1140 ▼

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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