Risk of an ECB 50bp cut now a coin toss
Nov 22 (Reuters) -Another soft set of PMI figures out of the euro area, which continues to leave the risk of a larger cut from the European Central Bank on the table. Policy easing priced in for the December meeting now stands at 38bps (53% chance of a 50bp cut), up from 29bps before the data.
For the euro, clearly the path of least resistance remains firmly on the downside, and with technical breaches through 1.05 and now the 2023 low at 1.0448, this only adds to the case.
The data also speaks to the fact that there is an ongoing U.S. exceptionalism trade, epitomised by the non-zero probability that the Federal Reserve could pause at the December meeting, while the ECB potentially delivers a larger cut. Therefore, further emphasising that there is a lack of alternatives to the dollar, which has now broken out of its two-year range.
Looking ahead, ECB speak in response to the data will be key. This will also up the ante for the inflation figures where a softer services inflation print would embolden the case for a 50bp ECB cut.
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ECB pricing https://tmsnrt.rs/3AJe6kV
EURUSD 15 min chart https://tmsnrt.rs/4fZO8sd
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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