Data from the Eurozone – Will the ECB cut rates in October?

The exchange rate of the world’s main currency pair did not break the resistance of 1.12 USD, hindered by yesterday’s speech from the chairman of the Federal Reserve (FED). Today, the EUR/USD rates were further weakened by more recession data from the eurozone, while Switzerland came out on top, with its readings above forecasts.

Powell Explains

Yesterday’s speech by the head of FED clarified the market perception for American policymakers. Jerome Powell expressed a clear stance on further decreases in the cost of money by 50 basis points this year – overdoing it would not be reasonable. This begs the question, why was such a decrease made in September? However, this means that – according to Powell’s words – currently by the end of the year, the US may consider two 25 p.b cuts at most. This isn’t entirely reflected in the market forecasts of the CME Group, where the probability of a single move in November has increased to 61%, but the dominating scenario for December remains at 50 p.b. This suggests that some analysts are still making the last FOMC decision of the year contingent on market data, which seems to be a reasonable approach. Highlighting cautious cuts in the US has strengthened the dollar, which on the EUR/USD chart have drifted below 1.11 USD by midday. This signifies a significant drift away from the resistance of 1.12 USD I wrote about yesterday.

ECB Analyses Incoming Data

Today’s publications from the eurozone provided the Community policymakers with a strong argument to consider a cut in the interest rate in October. The HICP inflation dropped as expected to 1.8%, and its basic equivalent to 2.7%, i.e. by 0.1 percentage point below expectations. Furthermore, the readings of the PMI indices for the industry, excluding Spain, were below 50 points, suggesting a further downturn in the surveyed branch of the economy. Among the recession group was Poland with a result of 48.6 pts. The lowest value was indicated by Germany – 40.6 pts. No wonder, therefore, that the indicator for the entire zone was at 45 points.

The decline in the consumer price growth rate caused by weakened activity in such a large branch of the economy as the industry is slowly becoming thin ice. In the event of cracks, it could lead to a deepening of an already concerning situation. In addition, no policymaker would want a deep recession to occur during their term. This factors into an earlier-than-expected cut in the cost of money in the eurozone. The weakening of the EU currency is simultaneously another piece of the puzzle, which affects today’s drops on the euro-dollar.

Better News From Switzerland

The PMI index readings for the industry were also published in Switzerland. The result of 49.9 points was higher than the previous one (49 points) and the decreasing expectations (47.9 points). Ultimately, the publication is positive and even brought the Swiss closer to the neutral level of 50 points, which they were last above in December 2022. Retail sales in annual terms also fared well, increasing by 3.2% (forecast 2.6%) after an upward correction of the previous reading. Today’s data strengthened the franc not only against the Polish zloty but also against the pound or euro. At the time of writing this text, the CHF/PLN exchange rate is up above 4.56 PLN.

Author: Dawid Górny, Currency Analyst Walutomat.pl