ECB rate cutting cycle 'has come to an end'

An unexpected pickup in the Eurozone PMIs of business activity provides important validation for our view that the ECB's rate-cutting cycle has come to an end. We expect this week's meeting to be a non-event, with President Lagarde set to signal little appetite for further easing.

The improvement in the PMIs was particularly notable in the German services sector, perhaps an early sign that the fiscal stimulus package is starting to be felt. Activity in France, on the other hand, continues to contract, partly in response to the acute uncertainty created by the recent political malaise.

Both the PMIs and the ECB's hawkish stance should, we believe, provide some modest support for the euro into year end.

News of a US-China trade deal should, at the margin, also be positive for the common currency, given the bloc’s relatively high exposure to the Chinese economy.