Data Supports ECB Rate Cut
The Eurozone's economic growth rate for the second quarter has been revised down to 0.2%, slowing from the first quarter. Germany's economic performance was weak, while Spain's economy was strong. Additionally, a key indicator of wage growth in the Eurozone has also slowed, providing more support for a rate cut by the European Central Bank. The average salary per employee in the Eurozone grew by 4.3% in the second quarter, down from 4.8% at the beginning of the year. Although inflation has eased in recent months, inflationary pressures in the service sector remain.
ECB Executive Board member Philip Lane stated, "So far, the data has confirmed the direction of our actions, and we hope this data will help us continue to reduce restrictions. On September 12, at Beijing time, the ECB will hold a rate decision meeting, and the market widely expects the central bank to cut rates by 25 basis points. Surveys show that 64 out of 77 economists predict the ECB will cut rates in both September and December. The money market has increased its expectations for ECB rate cuts, now anticipating 64 basis points of cuts this year, up from the previous expectation of 62 basis points.
Investment Banks Predict ECB Rate Cut
Recently, investment banks have also converged in their predictions of ECB decisions, with most forecasting a rate cut on the horizon.
Danske Bank stated in its report, "We expect Lagarde to confirm that the ECB is entering a rate-cutting phase but will not commit to a specific timeline for further cuts." The bank expects the ECB to maintain policy flexibility, make decisions based on data, and slightly raise its core inflation forecast.
Metzler analysts believe the ECB will proceed cautiously with rate cuts, forecasting another 50 basis points cut for the rest of the year due to high inflation and wage growth in the service sector. Citi interest rate strategists noted that the ECB is likely to cut rates by 25 basis points this week, but the extent of the cut will depend more on the Eurozone's HICP data on October 2 rather than U.S. employment data.
Analysts from TD Securities and ING both believe an ECB rate cut is unlikely to have a substantial impact on the euro. However, ING analysts pointed out that the appointment of Michel Barnier as French Prime minister by President Macron could have a positive effect on the euro.
CityIndex forex analyst Fawad Razaqzada maintains a moderately bullish outlook for the euro against the dollar, believing that the euro may encounter resistance around 1.1100 and then 1.1140 in the near term. If these resistance levels are broken, the area above the August high of 1.1200 will become the primary target for bulls.
