BofA: What we expect from the November ECB meeting and the EUR reaction

BofA expects the ECB to cut rates by 25bps at its December meeting, fully in line with market pricing, and to continue easing until the deposit rate reaches 1.5% by September 2025. Despite a meeting-by-meeting approach, BofA foresees a directional bias toward further easing. The EUR faces modest downside risks, particularly against the JPY, USD, CAD, and GBP, amid ongoing US policy uncertainties.

Key Points:

1. ECB Policy Expectations:

• Rate Cut Forecast: 25bp cut in December, continuing until the deposit rate hits 1.5% by September 2025.
• Policy Stance: Meeting-by-meeting approach with data-dependence but likely directional guidance toward neutral rates.
• Forecast Implications: ECB forecasts for 2027 likely to show inflation at or slightly below target, justifying the return to neutral without pre-committing to additional cuts.

2. EUR Outlook:

• Short-Term Risks: Modest downside risks for the EUR around the ECB meeting and its policy stance.
• Cross-Currency Views: EUR may underperform against JPY, USD, CAD, and GBP due to relative monetary policy divergence and US trade policy uncertainty.

Conclusion:

BofA anticipates a 25bp rate cut from the ECB this week, with further easing through 2025. The EUR faces moderate downside risks, driven by relative policy stances and geopolitical uncertainties, especially concerning US trade policy. Investors should remain cautious on EUR crosses in the coming months.

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This article was written by Adam Button at www.forexlive.com.