The Euro has rallied thanks completely to the surprise rate cut from the Federal Reserve since comments from ECB officials are growing less hawkish by the minute.
Constancio said this morning that the chance of a US recession has increased and as a result, he sees revised expectations for European growth. Junker echoed the same message when he said that Europe no longer rules out a US recession. Although we do not expect the Eurozone to be immune from the rapid deterioration in the US economy, we also do not expect the European Central Bank to cut interest rates. As a result, the increasingly lower rates offered by the US and the steady rates offered by the Eurozone should send the Euro back towards 1.50 Meanwhile the British pound has also rallied, but traders should watch out for tomorrow’s GDP numbers and the release of the minutes from the most recent central bank meeting. If you recall, the BoE left rates unchanged. A narrow margin would be perceived as pound bearish while a strong majority in favor of unchanged rates would be positive for the British pound. Finally, Switzerland reported weaker than expected retail sales growth, but that has had little impact on the Swissie.
