Synopsis:
ANZ provides insights into the euro and pound's trajectories following the recent ECB rate cut and the UK’s CPI data, highlighting key factors influencing their valuations.
Key Points:
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EUR Outlook:
The ECB has cut rates by 25 basis points in line with market expectations. This decision was supported by a decline in EU headline inflation to 1.7% in September from 2.2% in August, with core inflation also easing to 2.7%. Services inflation fell below 4%, indicating a shift in inflation dynamics. -
Neutral ECB Tone:
Despite acknowledging downside risks to growth and inflation, the ECB maintains a data-dependent and neutral stance. President Lagarde did not provide clarity on the pace of future rate cuts, contributing to bearish sentiment surrounding the euro. -
Market Reactions:
The euro has shown weakness following the ECB's decisions, and with CFTC data indicating a decline in net long positions, bearish trends are likely to persist. The EUR/USD has breached a significant support level at 1.0835, with the next support target around 1.0666. -
GBP Outlook:
The GBP/USD briefly dipped below 1.30 following weaker-than-expected CPI data, reinforcing expectations for a 25bp rate cut at the upcoming BoE meeting. Services inflation has cooled, coming in below the BoE’s forecast, which adds credence to the need for further easing. -
Labour Market Data:
Mixed labour market data and softer CPI figures support the notion of accelerated easing. With CFTC non-commercial positioning showing a notable net long position in GBP, any disappointing UK data could trigger a sharper decline in the pound.
Conclusion:
Both the euro and pound face downward pressures in the near term, influenced by the ECB’s cautious stance and disappointing inflation data in the UK. Key upcoming indicators, such as PMIs for the eurozone and further labour market data for the UK, will be critical in shaping market sentiment and positioning.