Inflation may cement the ECB’s low bets – ING

Inflation figures in France and Spain surprised by falling on Friday to 1.2% and 1.5% respectively. This helps explain the euro’s weak reaction to rising China stocks this morning, as markets are almost fully pricing in a 25bp European Central Bank interest rate cut in October, both because of these lower inflation footprints and and a Reuters report suggesting that the dovishness of the Board of Governors is intensifying. pressure to continue easing policy, notes Francesco Pesole, ING’s currency strategist.

Short-term move to 1.1200 is possible in EUR/USD

“What seems clear from the latest communication outside the meeting is that hawkish-dove factions are at a recent high within the ECB. Ultimately, the data should be the tie-breaker for an October cut, so expect this morning’s German CPI and tomorrow’s Eurozone numbers to trigger some moves in the Euro.”

“We can also get some clues from ECB President Christine Lagarde’s speech to the EU Parliament today. We have a number of solicitors and speakers speaking later this week, including Isabel Schnabel and Philip Lane. If we end the week with slower-than-expected inflation in the Eurozone and somewhat weaker US wages figures supporting a 50bp Fed cut, then we expect the Euro to be one of the laggards in a weak USD environment as markets reinforce bets that the ECB will continue to cut. in October.”

“Another short-term move to 1.1200 is possible in EUR/USD amid USD weakness, but unless we see surprisingly strong inflation in the Eurozone, a big break higher may not be on the cards . We favor a stable 1.11-1.12 trading range in the first half of October.”