- The ECB cuts its benchmark interest rate by a further 25bp yesterday taking the key rate to 3.25% from 3.5%. The move was expected and was the first time that the ECB had cut in consecutive meetings since 2011. The single currency fell further on the announcement as traders continue to price in further cuts – possibly as soon as December. The expectation comes despite President Christine Lagarde continuing with her well-worn non-committal language on the future path of interest rates, pledging “data dependant” actions on a “meeting by meeting” basis. She did however warn over the shifting economic backdrop with disinflation, “well on track” and even subject to “downside risk” adding “we are still looking at that soft landing.” She further added, “on the basis of the information that we have, we certainly do not see a recession.” After recent poor data and soft inflation, money markets are pricing 25bp cuts at every policy meeting all the way out to April.
- Solid US data yesterday helped to keep the US dollar elevated with Retail Sales higher than forecast in all categories. Weekly jobless claims were lower than consensus boosting treasury yields as markets wind down aggressive cuts from the Federal Reserve. Cuts of 25bp on an ongoing basis appear to be on the cards going forward, however many analysts suggest caution, with some suggesting the central bank may introduce a blend of cut and pause over the next few months.
- The pound posted gains this morning, rallying above 1.30 against the greenback after UK Retail Sales unexpectedly rose in September. The volume of goods sold in stores and online increased 0.3%, rising for a third consecutive month despite falling consumer confidence and uncertainty ahead of tax rises which are expected to be announced at the upcoming budget.
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