The euro is facing some headwinds this afternoon, after the ECB cut interest rates again, while hinting at more easing ahead in its accompanying communications. There was no explicit forward guidance provided by president Lagarde, nor were we expecting any.
She did, however, strike a relatively dovish note during her press conference, saying that the Euro Area economy had been weaker-than-expected and that there were more downside risks to inflation than there were upside ones.
The ECB is not currently in the business of pre-committing to a rate path, with Lagarde again emphasising a meeting-by-meeting approach. That said, her comments on inflation, which appear to portray greater confidence on achieving the 2% target, and the bank’s apparent concerns over the growth outlook, which has clearly deteriorated since the summer, point to further rate cuts by year-end. Indeed, markets are now almost fully pricing in an additional four cuts in each of the next four ECB meetings through to April.
