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ECB to stick to data-dependent path in lowering rates – OCBC

Source Fxstreet

EUR/USD has been depreciating towards 1.10 over the past four sessions into the interest rate cuts expected at today’s European Central Bank governing council meeting, OCBC’s FX analysts Frances Cheung and Christopher Wong note.

ECB is not on auto-pilot yet

“Apart from the deposit facility rate declining a second time by 25 bps to 3.50%, there are also expectations for the main refi and marginal lending facility rates to fall by a larger 35 bps to 3.65% and 3.90%, respectively. However, this does not imply that ECB President Christine Lagarde is about to ditch the data-dependent path of lowering rates.”

“ECB Chief Economist Philip Lane said a fortnight ago at Jackson Hole that the goal to return to the 2% target was not yet secure, pending the projections for wage growth to slow significantly in 2025 and 2026. Echoing Lane’s caution against complacency regarding price stability, Bundesbank Joachim Nagel wants to avoid cutting rates too quickly.”

“Nagel’s recent comments about the “great wave of inflation” being over should be viewed against his call on the coalition government to push ahead with measures to support the weak German economy. Lagarde’s guidance will be important in deciding if the EUR holds or falls below the psychological 1.10 level.”

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