ECB set to deliver hawkish cut tomorrow.


Tomorrow the ECB is likely to deliver a 25-bps cut. The cut is expected, with markets having priced in the cut from 4% to 3.75% for a few weeks now. However, forward guidance will be key here, with market participants focusing on any clues provided regarding future policy direction.

Many regard, however, this to be a "hawkish cut" and that further rates cuts should not be expected in the shorter-term. Markets are only pricing in a 10% chance for a second cut in July, with the next probably coming in October. A third cut is currently hanging in the balance.

Questions during the press conference are likely to be met with references to data dependency and taking a meeting-by meeting approach. This is because last month's CPI picked up from 2.4% to 2.6%.

Interestingly, the EURUSD has continued to drift sideways with the spread between the German 2-year note and US 2-year note remaining benign, despite the fact tat the ECB is likely to cut. This seems to support the notion that this is to a hawkish cut in nature.

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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