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Euro gains after ECB rate cut as Lagarde pushes back on October ease

Published 2024-09-12, 03:34 p/m
© Reuters. FILE PHOTO: U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo
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By Gertrude Chavez-Dreyfuss and Chibuike Oguh

NEW YORK (Reuters) - The euro rose against the dollar on Thursday after the European Central Bank lowered interest rates and ECB president Christine Lagarde dampened expectations for another cut next month, saying the bank will let economic data dictate the next policy move.

"We are going to decide meeting by meeting," Lagarde said in a briefing after the ECB eased again on Thursday by 25 basis points (bps) amid slowing inflation and economic growth.

"I'm not giving you any commitment of any kind as far as that particular date is concerned and our path is not predetermined at all."

The ECB lowered its deposit rate to 3.5%, as widely expected. The refinancing rate, however, was cut by a much bigger 60 bps to 3.65% in a long-flagged technical adjustment.

Rate futures have pared back bets of an October rate cut to just more than seven bps from 10 bps just before Lagarde spoke, according to LSEG calculations.

"Looking ahead, the path for interest rates remains uncertain," said Yael Selfin, chief economist at KPMG in the UK.

"While there is widespread consensus on the Governing Council that policy restrictiveness should be eased, divergent views remain around the pace of cuts."

She expects further easing in December that would take the deposit rate down to 3.25%. If the euro zone outlook weakens further, Selfin sees ECB policymakers increasing the pace of cuts next year towards a terminal rate of around 2.25%.

The euro was last up 0.37% at $1.105, but down 0.5% so far this week.

Against the yen, the euro rose about 0.2% to 157.145 yen.

The U.S. dollar index fell 0.41% to 101.36 , driven partly by gains in the euro, the largest component of the index.

Against the yen, the dollar eased 0.2% on the day to 142.07 , after gaining 0.2% so far this week.

"Lagarde kind of delivered what was expected at the ECB," said Steve Englander, head of Global G10 FX Research at Standard Chartered (LON:STAN) in New York.

"Overall, the market has a bit of risk appetite and they're buying currencies that they sold before - which often is an indication that risk appetite is restored."

Mixed U.S. economic data released on Thursday cemented expectations of a 25-bps cut next week by the Federal Reserve.

U.S. initial jobless claims rose 2,000 to a seasonally adjusted 230,000 for the week ended Sept. 7, in line with expectations.

U.S. August producer prices increased a slightly-more-than-expected 0.2% as services costs rose, but the trend remained consistent with ebbing inflation. Data for July was revised lower to show the producer price index unchanged instead of edging up 0.1% as previously reported.

Economists polled by Reuters had forecast the PPI gaining 0.1%.

"Stable producer prices should drive investment and that will drive the economy," wrote Scott Helfstein, head of investment strategy at Global X in emailed comments. "It is time for the Fed to cut, but they may well take it slow and steady. That seems to be their operating model."

The U.S. rate futures market has priced just a 27% chance of a 50-bp cut this month, down from as high as 50% on Friday following a mixed U.S. nonfarm payrolls report.

For 2024, rate futures expect 108 bps cuts, down from about 113 bps earlier this week.

Bank of Japan board member Naoki Tamura, known as a policy hawk, said on Thursday the BOJ must raise rates to at least 1% as soon as the second half of the next fiscal year but added that it would likely raise rates slowly and in several stages.

On Wednesday, fellow BOJ board member Junko Nakagawa reinforced the central bank's tightening bias by saying low real rates leave room for further rate hikes.

Those comments have helped the yen, which has gained 2.6% so far this year versus the dollar.

In other currencies, sterling rose 0.48% versus the greenback to $1.3106 after dipping to $1.30025 in the previous session, its lowest since Aug. 20.

In cryptocurrencies, bitcoin gained 1.59% at $58,398.00. Ethereum rose 0.29% at $2,354.60.

Currency bid prices at 12 September 02:55 p.m. EDT

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct High Bid Low Bid

Dollar index 101.37 101.78 -0.39% 0.00% 101.84 101.35

Euro/Dollar 1.1059 1.1011 0.44% 0.19% $1.1063 $1.1006

Dollar/Yen 142.05 142.435 -0.26% 0.73% 142.98 141.965

Euro/Yen 1.1059 156.75 0.22% 0.94% 157.51 156.54

Dollar/Swiss 0.852 0.8523 0.01% 1.28% 0.855 0.8519

Sterling/Dollar 1.3102 1.3044 0.46% 2.97% $1.3108 $1.3033

Dollar/Canadian 1.359 1.3575 0.14% 2.55% 1.3605 1.3566

Aussie/Dollar 0.6715 0.6676 0.57% -1.53% $0.6722 $0.6656

Euro/Swiss 0.9422 0.9383 0.42% 1.46% 0.9433 0.9379

Euro/Sterling 0.8439 0.8437 0.02% -2.64% 0.8455 0.8434

NZ Dollar/Dollar 0.6171 0.6138 0.56% -2.32% $0.6174 0.613

Dollar/Norway 10.7338 10.8517 -1.09% 5.9% 10.8734 10.7315

Euro/Norway 11.8709 11.9517 -0.68% 5.76% 11.974 11.866

© Reuters. FILE PHOTO: Euro and U.S. dollar banknotes are seen in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

Dollar/Sweden 10.2996 10.3741 -0.72% 2.31% 10.4036 10.2953

Euro/Sweden 11.3907 11.4333 -0.37% 2.38% 11.4519 11.3849

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