ECB officials start to talk up possibility of larger 50bps cuts – MUFG

The Euro (EUR) has continued to weaken against the US dollar since last week’s ECB policy meeting with EUR/USD falling to an intra-day low of 1.0761 on Wednesday, MUFG’s FX analyst Lee Hardman notes.

ECB larger 50bps cuts are coming next

“The pair is now trading back below its year to date of average 1.0875 after hitting a year to date high of 1.1214 on 25th September. The abrupt reversal lower for EUR/USD over the past month has been driven mainly by building speculation over a Trump victory and Red Sweep following the US election, and market expectations for widening policy divergence between the ECB and Fed.”

“A Trump victory and Red Sweep could also reinforce market expectations for a wider ECB and Fed policy divergence going forward. Trump’s trade war poses upside risks for the US inflation while it would heighten downside risks for the euro-zone economy.”

“As result, it could curtail the Fed’s room to keep lowering rates in the coming years while the ECB keeps lowering rates to support growth.”