|

What should we expect from this week’s ECB meeting?

Scope Ratings (Scope) expects the ECB to stay on hold this Thursday. The euro area economy has been relatively resilient and Scope foresees slight further upside revisions of growth projections from the ECB by their December update. Most policymakers may feel rates are at the right level presently as inflation risks are comparatively balanced, with greater downside risks for price rises near term but greater upside in the medium to long run. The arguments for a further rate reduction are tempered by the slight rise in September inflation and the slight uptick in wage growth during Q2.

Euro area core inflation remaining slightly above target

Euro area core harmonised price index, % year on year.

Source: Eurostat, Scope Ratings

No further ECB rate reductions during 2025

Scope does not anticipate any further ECB rate reductions this year, but the ECB may keep its options open. The risk to Scope’s base case late this year or next year is for further easing rather than tightening. The direction of the next change in official rates hinges on factors such as the inflation dynamics, the consequences of global trade tensions, the growth outlook and the euro exchange rate. Any move in the euro meaningfully above 1.20 against the dollar as an example may provoke greater concerns. A significant drop in projected inflation for 2028 could push ECB policymakers to contemplate further easing. The rating agency’s expectation of corrections in bubbly financial markets may also raise pressure on the central bank.

US policy is crucial. The continuation of US rate reductions under market and political pressure may add growing pressure on European policymakers to also ease.

Author

Dennis Shen

Dennis Shen

Scope Ratings

Dennis Shen is Chair of the Macroeconomic Council and Lead Global Economist of Scope Ratings, the European rating agency, based in Berlin, Germany.

More from Dennis Shen
Share:

Editor's Picks

AUD/USD hangs near three-week low, below 0.6950 as traders await US NFP report

AUD/USD hits a three-week low during the Asian session on Friday as the RBA’s dovish shift and a rout in equity markets weigh on the risk-sensitive Aussie. However, the recent slump in US bond yields to a two-month low keeps US Dollar bulls on the back foot and limits losses for the currency pair as traders look to the US NFP report for a fresh impetus.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold loses the grip; $4,000 comes next on the downside

Gold sets aside two daily advances in a row on Friday, opening the door to a potential test of the key $4,000 mark per troy ounce. The precious metal’s retracement follows a decent improvement in the sentiment surrounding the US Dollar, solid NFP data and higher US Treasury yields across the board.

Democrats win House and Senate in US midterms: Why isn’t all bad news for crypto

The biggest story this week was Tuesday’s US midterm elections, which saw Democrats win control of both the House and the Senate in a clear blue wave. This political shift in the US has triggered sharp price swings across the cryptocurrency market.

Week ahead – Inflation and geopolitics in focus as US political landscape shifts

Post-midterm election euphoria fizzles out as risk aversion prevails. US CPI, PPI and Fedspeak on the radar as Fed hike bets remain supported. Oil retreat pauses on mixed hopes about the ongoing conflicts.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.