- Data released yesterday showed that inflation in the euro-area slowed below the ECB’s 2% target for the first time in three years. Consumer Prices rose 1.8% from a year ago, down from the previous recording of 2.2% as energy prices dropped sharply. The print follows softer releases from individual euro-area countries and reinforces increasing belief that the ECB will need to loosen monetary policy at an even faster pace than previously anticipated to boost a struggling economy amid unexpectedly rapid disinflation. The central bank next meets on 17 October and a further 25bp cut is all but done. Markets are currently pricing a further reduction of the same magnitude at the December meeting, taking the benchmark rate down to 3%. The data pushed EURUSD lower after the pair failed to hold on to recent gains above 1.12. Old support at 1.1060 was tested and EURUSD is currently consolidating at this level, with a further fall likely to test the psychological 1.10 area.
- Risk appetite was further tested overnight with further escalation in the Middle East with Iran firing missiles at Israel. Oil prices surged amid concerns over disruption of supply and retaliation as promised by Israel Prime Minister Benjamin Netanyahu.
- Traders and analysts will be looking for further clues on the size and timing of rate cuts from the Fed, as we look forward to the release of a series of labor market data in the coming days. The ADP Private Payroll report is next on the docket today and may act as an appetiser for the main course which comes with Friday’s Non-farm Payroll print. Yesterday’s JOLTs data showed that the number of job openings ticked up, which will likely be a relief to members of the FOMC as the data reduces the downside risk to the employment side of the central bank’s dual mandate.
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