Markets increasingly anticipate September ECB rate cut – Euro currency news daily

The European Central Bank Governor, Martins Kazaks, said on Thursday that he is “very much open” to discussing another interest rate cut at the ECB’s September meeting. He noted that inflation is normalizing toward the 2% target, despite persistently high inflation in services, but emphasized that this should not deter the council from proceeding with the projected interest rate cuts.

In the UK, business activity showed its strongest growth in four months, accompanied by cooling inflation pressures. The Purchasing Managers’ Index rose to 53.4, up from 52.8 in July. This improvement has led markets to scale back expectations for additional interest rate cuts by the Bank of England for the remainder of 2024, which has supported the Pound’s recent rally.

The US Dollar outperformed its peers on Thursday as PMI data revealed that private sector economic activity continues to expand at a healthy pace. Over the past week, markets had been selling Dollars due to concerns about a slowing US economy, while inflation data in some sectors remains somewhat elevated. Meanwhile, there is uncertainty about the timing and pace of upcoming interest rate cuts by the Federal Reserve.

Markets are increasingly anticipating that the European Central Bank will cut rates at their September meeting, driven by uncertainty over the economic outlook and cooling inflationary pressures. Notably, wage growth, which had been persistently high, has slowed significantly from 4.74% to 3.55%. This reduction should provide the ECB with greater confidence when considering additional rate cuts in 2024.

Bank of England Governor Andrew Bailey is scheduled to speak at the Jackson Hole Symposium later today. His speech is expected to offer clear insights into potential borrowing cost reductions for the remainder of 2024. Despite recent strong manufacturing data, markets now see only a 30% chance of a BoE rate cut at the upcoming September policy meeting.

Fed Chair Jerome Powell is also set to speak today at the Jackson Hole Symposium, where he is expected to provide guidance on interest rate policy and the US economic outlook. The majority of Fed members now agree that if economic data continues to align with expectations, a rate cut could be appropriate at their September meeting. Additionally, recent increases in US unemployment are fueling speculation of further rate cuts through the rest of 2024.

Source: EUbusiness