BofA expects the ECB to cut rates by 25bps at its December meeting, fully in line with market prices, and to continue easing until the deposit rate reaches 1.5% by September 2025. Despite a meeting-by-meeting approach, BofA expects a direction bias. towards further relief. Risks are low against the EUR, especially against the JPY, USD, CAD, and GBP, amid continued uncertainty about US policy.
Key points:
1. ECB Policy Expectations:
- Rate Forecast: A 25bp cut in December, continuing until the investment rate reaches 1.5% by September 2025.
- Policy Position: A meeting-by-meeting approach with a reliance on data but a tendency of direction towards neutral standards.
- Preview results: ECB forecasts for 2027 are likely to show inflation at or slightly below target, justifying a return to neutral without committing to further cuts.
2. EUR Outlook:
- Short term risks: Low risks for the EUR around the ECB meeting and its policy stance.
- Cross currency views: EUR may be lower against JPY, USD, CAD, and GBP due to relative monetary policy divergence and US trade policy uncertainty.
Conclusion:
BofA expects a 25bp rate cut from the ECB this week, with further easing through 2025. Risks are moderately low on the EUR, driven by relative policy stance and geopolitical uncertainty, particularly around trade policy than SA. Investors should be wary of EUR crosses in the coming months.
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