Bar for further ECB cuts 'now very high'

As expected, the ECB voted unanimously to keep policy unchanged at its September meeting. In its statement, lower trade uncertainty and a more balanced growth outlook were repeatedly emphasised. The strength of the jobs market and the resilience of domestic demand were underlined, and the 2025 growth forecast was revised upwards to 1.2% (from 0.9%).

The bank remains unconcerned about inflation and seems content in its “good place”. We see the bar for further cuts as now very high, and markets seem to be in agreement, with swaps placing less than a 50% chance of another rate reduction in the next twelve months.

After an initial drop following the announcement, the 10-year German Bund yields ticked up by a few basis points, reflecting the more favourable growth outlook presented by Lagarde.

EUR/USD also rose, albeit we attribute the lion's share of the move to the disastrous US jobless claims reading, rather than anything out of yesterday’s Governing Council meeting.