The European Central Bank (ECB) is expected to keep rates on hold today, emphasizing that policy is in a ‘good place’ as stronger activity, wage, and inflation data lift euro-zone short-term rates. With the BoE still cutting rates, EUR/GBP is likely to rise toward 0.9000 next year, MUFG’s FX analyst Lee Hardman reports.
Lagarde hints at upward revision to growth forecasts
“The ECB are expected to leave rates on hold today and signal with more confidence that policy is in a ‘good place’. Recent activity, wage and inflation data have all surprised to the upside encouraging market participants to scale back expectations for further cuts next year. It has helped to lift short-term rates in the euro-zone providing more support for the euro.”
“President Lagarde has already indicated that the ECB staff forecasts for growth are likely to be raised. The ECB is unlikely to be overly concerned by the release of the softer euro-zone PMI survey for December. With the ECB keeping rates on hold for longer and the BoE still cutting rates, we expect EUR/GBP to rise up closer to the 0.9000-level next year.”