Latest News

Traders start pricing in chance of ECB rate cut late next year

0

Traders start pricing in chance of ECB rate cut late next year By Reuters

Breaking News

‘;

Economy 1 minute ago (Sep 16, 2022 13:36)

© Reuters. FILE PHOTO: A symphony of light consisting of bars, lines and circles in blue and yellow, the colours of the European Union, illuminates the south facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 30, 2021. REUTERS/Wol

By Yoruk Bahceli

(Reuters) – Money markets in the euro zone have started pricing in a chance of an ECB rate cut late next year, as traders bet the bank may end up overtightening monetary policy by delivering a series of big rate hikes.

Last week the European Central Bank lifted its deposit rate by an unprecedented 75 basis points (bps) to 0.75% to “frontload” policy tightening and get a hold of soaring inflation. The bank implied rate rises could continue into early 2023 even as the bloc braces for recession.

Since that meeting, traders have ramped up their bets on larger moves. Money markets now price in around 70 bps of hikes in both October and December. They see rates peaking at around 2.7% in mid-2023, according to ICAP (LON:NXGN) data provided by Refinitiv.

Yet because of those steeper expectations, traders have also started to bet the ECB will then start cutting rates — money markets see rates at around 2.6% by February 2024.

Before last week’s ECB meeting, an additional 90 bps of hikes were priced in by year-end and rates were seen peaking at around 2.2% and then holding steady.

GRAPHICS: Traders start betting on ECB rate cut: https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrxnqopm/uzX46-traders-start-betting-on-ecb-rate-cut-after-mid-23-peak.png

“With the ECB in front-loading mode and taking a leaf out of the Fed’s book I expect further inversion,” said Antoine Bouvet, senior rates strategist at ING, referring to a rate cut being priced in.

The moves in euro zone money markets echo what has been happening in the United States.

There, the Federal Reserve has also been frontloading rate hikes, delivering a combined 200 bps of increases since May.

Fears that aggressive rate hikes will push the U.S. economy into recession have led traders to price in some 50 bps of Fed rate cuts next year after they peak above 4% in March.

For the euro zone, a Reuters poll expects the ECB’s deposit rate to peak at 1.50% and hold there, but investment banks Nomura, BofA and German insurer Allianz (ETR:ALVG) are among those already predicting rate cuts next year or in 2024.

The shift since last week implies traders pricing in over a 40% chance of a 25 bps cut by February 2024. But Piet Christiansen, chief analyst at Danske Bank, sees a one-off rate cut as unlikely, and instead says it reflects the market pricing a small probability of multiple 25 bps rate cuts.

“I think the hurdle is quite high and also because inflation is going to print above 2% until spring 2024 in Europe so politically, can (ECB chief Christine) Lagarde cut rates with inflation above 4%? I’m not sure,” he added.

Traders start pricing in chance of ECB rate cut late next year

European shares slide as recession fears grip global marketsBy Reuters – Sep 16, 2022

By Shreyashi Sanyal (Reuters) -European shares slid 1.2% on Friday as recession warnings from two major global financial institutions and bets of a large interest rate hike from…

European stocks set for weekly loss as global economic outlook worsensBy Reuters – Sep 16, 2022

By Elizabeth Howcroft LONDON (Reuters) – European stocks fell on Friday and Wall Street was set to open lower as investors braced for a U.S. rate hike next week amid more warning…

Euro zone banks hold on to ECB cash in headache for fight against inflationBy Reuters – Sep 16, 2022

By Francesco Canepa
FRANKFURT (Reuters) – Euro zone banks are holding onto trillions of euros in multi-year loans from the European Central Bank, data showed on Thursday, in a…

Our Apps



Terms And Conditions
Privacy Policy
Risk Warning

© 2007-2022 Fusion Media Limited. All Rights Reserved.

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

Euro zone banks hold on to ECB cash in headache for fight against inflation

Previous article

Sterling Hits 37-Yr Low, Dollar Staying Strong

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.

More in Latest News