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Jun 03 - 09:55 AM

Barclays: ECB Rate Cut Expectations and EUR/USD Forecast

By eFXdata  —  Jun 03 - 08:30 AM

Synopsis:

Barclays anticipates the European Central Bank (ECB) to initiate a rate cutting cycle starting this week, with subsequent reductions dependent on economic data. This expected monetary policy divergence with the U.S. Federal Reserve is seen driving the EUR/USD lower in the coming months.

Key Points:

  1. ECB Rate Cut Imminent: The ECB is poised to cut rates by 25 basis points this Thursday, marking the beginning of a series of reductions anticipated throughout the year.
  2. Projected ECB Rate Cuts: Consistent with Barclays' economists' forecasts, three rate cuts are expected in 2024 (June, September, December), reflecting a cautious and data-dependent approach by the ECB.
  3. Policy Divergence with the Fed: Currently, the market has priced in a modest policy divergence between the ECB and the Fed for 2024, with no differences expected by the end of 2025. This outlook may need adjustment given global economic conditions.
  4. Impact of External Factors: Subpar economic indicators from China and persistent geopolitical tensions, alongside the upcoming U.S. election, are likely to pressure EUR/USD further.
  5. EUR/USD Forecast: Barclays projects the EUR/USD to trend towards 1.05-1.06 over the coming months.

Conclusion:

Given the anticipated ECB rate cuts and the economic and geopolitical challenges globally, Barclays maintains a bearish outlook on the EUR/USD, expecting it to move towards their forecast range.

Source:
Barclays Research/Market Commentary

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