The European Central Bank (ECB) is expected to announce a 25 basis point (bps) interest rate cut following its monetary policy meeting on Thursday, December 12, with the decision set to be revealed at 13:15 GMT. ECB President Christine Lagarde will then hold a press conference at 13:45 GMT, offering further insight into the central bank’s monetary policy and answering questions from the media. These announcements are anticipated to significantly influence the Euro’s (EUR) performance for the remainder of the week.
Expectations for the ECB Rate Decision
After the ECB’s October meeting, the central bank reduced its key rates by 25 bps, bringing the interest rate on main refinancing operations to 3.4%, the marginal lending facility to 3.65%, and the deposit facility to 3.25%. A similar move is widely expected following this December meeting, with the ECB likely to cut its key rates by another 25 bps.
In her October press conference, President Lagarde emphasized that the ECB’s policy stance remained restrictive due to ongoing concerns about the Eurozone’s growth outlook. While she did not definitively commit to further easing at that time, markets have priced in the expectation of a rate reduction in December.
ECB policymakers have signaled support for further easing. Joachim Nagel, a member of the Governing Council, stated that he would not oppose a rate cut, given that the disinflation process appears to be progressing as expected. Similarly, Governing Council member François Villeroy de Galhau indicated that there is “every reason” for the ECB to implement a rate cut on December 12, noting that the decision would depend on incoming data, economic projections, and risk assessments.
Market Sentiment: Euro Faces Bearish Pressure
The outlook for the Euro remains bearish, as reflected in the latest Commitment of Traders (COT) report. According to analysts at Rabobank, net short positions on the Euro have increased for the third consecutive week, as traders continue to bet against the single currency. In November, the Euro was the worst-performing G10 currency, losing 2.37% against the US Dollar. The Euro’s decline has been driven by deteriorating economic conditions in the Eurozone, compounded by the expectation of further rate cuts from the ECB.
Rabobank analysts expect the ECB to proceed with a 25 bps rate reduction at its December meeting, which could further weigh on the Euro’s value in the short term.
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