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Apr 11 - 06:55 PM

Danske: ECB April Decision - A Path Set for June Cut

By eFXdata  —  Apr 11 - 03:00 PM

Synopsis:

The European Central Bank's (ECB) April policy meeting unfolded without significant surprises, aligning with Danske Bank's expectations and leaving minimal impact on the markets. The ECB's policy statement hinted at a potential rate cut in June, provided the inflation outlook, underlying inflation dynamics, and the efficacy of monetary policy transmission bolster confidence in achieving the inflation target sustainably. Despite the muted market response to the meeting, Danske Bank maintains its forecast of a 25 basis point rate cut in June, with additional quarterly cuts anticipated through the end of 2025. However, there is a bias towards fewer cuts in 2024 due to persistent domestic inflation.

Key Points:

  • June Rate Cut Signal: The ECB's communication pointed towards a likely rate cut in June, contingent on favorable assessments of inflation and monetary policy effectiveness.
  • Market Response: The immediate market reaction was limited, with EUR/USD dipping slightly following the ECB's announcement but recovering after softer-than-expected US PPI data.
  • US Data Dominance: Current dynamics suggest US economic indicators are the primary drivers of EUR/USD movements, with recent data showing a substantial increase in long USD positions.
  • Short-term Outlook: Soft US data could potentially support a temporary strengthening of EUR/USD in the coming months.
  • Long-term Forecast: Despite potential short-term gains for EUR/USD, Danske Bank anticipates a downward trend over the year, driven by the relative economic strengths of the US and factors influencing inflation persistence.

Conclusion:

The April ECB meeting solidified expectations for a forthcoming rate cut in June, aligning with Danske Bank's predictions. While immediate market reactions were subdued, the longer-term outlook for EUR/USD is bearish, influenced by the comparative economic resilience of the US and ongoing inflation trends. Danske Bank projects EUR/USD to decrease to 1.05 over a 12-month period, reflecting broader economic and financial conditions.

Source:
Danske Research/Market Commentary

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