ECB easing cycle is 'over'

The September meeting of the ECB was the non-event that most market participants were expecting. Lagarde’s press conference was fairly hawkish, as she voiced that the bank was not overly concerned about inflation and that officials believed policy to be in a “good place”.

Barring something quite extraordinary, we think that the easing cycle is over and no more cuts are now priced in by swaps markets.

Nevertheless, the closing of the interest rate gap with the US (a positive for the common currency) is now counterbalanced by worries about the French fiscal picture.

As in the UK, even modest cuts seem to be politically impossible and the French deficit is the worst in the Eurozone. Already sky-high taxation levels make it difficult to close the gap through the usual expedient of tax increases. Fitch's downgrade of France's sovereign rating over the weekend underscores the problem.

This week is a quiet one for the Eurozone, so the euro will trade off events elsewhere.