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Jun 05 - 12:55 PM

BofA: What We Expect From June ECB and EUR/USD Reaction

By eFXdata  —  Jun 05 - 11:00 AM

Synopsis:

Bank of America (BofA) anticipates the European Central Bank (ECB) to implement a 25 basis point cut across all policy rates in its upcoming June meeting, initiating a larger easing cycle projected to span until mid-2025. The bank discusses the expected cautious approach by the ECB and its implications for the EUR/USD exchange rate.

Key Points:

  1. Rate Cuts Initiated: BofA expects the ECB to start its easing cycle with a 25bp rate cut, which is seen as the beginning of a total of 200bp of reductions expected through July 2025.

  2. Guidance and Communication: The ECB is anticipated to maintain a cautious stance with data-dependent guidance, indicating a non-committal approach to future rate cuts. This approach underscores the uncertainty and the ECB’s cautious outlook on the economic recovery.

  3. Press Conference Signals: ECB President Lagarde is likely to emphasize the gradual nature of policy normalization, distinguishing between reducing policy restrictions and normalizing rates. This suggests no rush to lower rates beyond the current easing phase.

  4. EUR/USD Outlook: BofA suggests that while the ECB may get repriced lower in the coming months, the June meeting itself is unlikely to significantly impact the EUR/USD rate. Any soft hints for further cuts in September might be balanced by potential upward revisions in economic forecasts.

Conclusion:

While the ECB’s June meeting is set to begin an easing cycle, BofA advises that the overall impact on the EUR/USD exchange rate will likely be limited. The ECB's cautious and measured approach in its rate-cutting strategy and its communication are expected to prevent significant market surprises, keeping EUR/USD relatively stable in the near term.

 
Source:
BofA Global Research

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