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ECB may consider rate cuts earlier than it wants to admit

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By Craig Erlam  

There were no major surprises from the ECB on Thursday, with the European central bank leaving rates on hold while warning they will remain high for a sufficiently long duration.

However, there were signs that policymakers are a little concerned about the consequences of all this tightening, most notably the repeated references to weakness in the economy.

Higher bond yields were also mentioned as something the ECB is closely monitoring, as well as the impact of past tightening as it works through the system.

The economic data between now and December will be key, with the projections potentially laying the groundwork for the debate around rate cuts in 2024.

The euro was quite lively between the announcement and the press conference, but it’s clear that the central bank is not entirely sure where things stand currently and what the next steps are, and the moves in the currency reflect that.

Ultimately, it all comes down to the data between now and the December meeting at which point we may get forecasts that enable the ECB to at least discuss when rate cuts could be appropriate.

That may seem unlikely now, but the economy is clearly struggling and so it’s only a matter of time.

Oil remains volatile amid uncertainty

It’s been a volatile week in the oil market, with prices on Thursday down 2% after rebounding a similar amount a day earlier.

The economy remains a downside factor for crude prices, with traders concerned about growth prospects amid high interest rates. Europe is already struggling under the pressure, as the ECB was keen to point out earlier in the day.

Earnings season isn’t going particularly well and we’re constantly being reminded of the downside risks here too.

And then there’s the situation in Gaza and Israel which has previously triggered a surge in oil prices and is now being unwound due to the perception that the risks of a wider conflict are falling.

Gold misses $2,000

Gold made another run at $2,000 earlier in the day before paring gains once more to trade slightly lower.

There’s still plenty of appetite for safe havens in these uncertain markets, but the yellow metal is struggling to take the leap above such a significant psychological level.

That it’s doing so against the backdrop of a strong dollar and high yields shows how strong the safe haven appeal remains.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.