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ECB Cut Rates as Markets Look Towards US Labour Data

Friday feeling, ECB cut rates after nine months of holding at highest level, release of US labour market data this afternoon, and rising gold prices continue.

Friday Feeling
Check out this week’s playlist here!
Milkshake – Kelis
Political Science – Randy Newman
Stand and Deliver – Eric Clapton
Lift Off – JAY-Z, Kanye West, Beyoncé
Guess Who’s Back – Rakim

ECB Cut Rates

Yesterday afternoon the ECB met market expectations in conducting their rate cut since 2016. This follows nine consecutive months of rates being held at their highest level since the currency union’s inception, in a move which is indicative of how Frankfurt sees their fight against inflation entering a new stage.

The 25bps cut brings their main refinancing operations to at unchanged 4.25%, while their marginal lending facility and deposit facility eases to 4.5% and 3.75%, respectively.

Despite the cuts, the euro was supported by Frankfurt upwardly revising inflation expectations, singling that future monetary easing may not come as thick and fast as some might expect.

Here, the President of the ECB Christine Lagarde maintained that “We are not pre-committing to a particular rate path” and that “we will keep policy rates sufficiently restrictive for as long as necessary” to “ensure that inflation returns to our two per cent medium-term target in a timely manner”.

For example, the central bank now sees headline inflation averaging 2.5% in 2024 ahead of easing 30bps to 2.2% over 2025 and back down below the 2% target in 2026.  The ECB also considered how “upside risks to inflation also stem from the heightened geopolitical tensions, which could push energy prices and freight costs higher in the near term and disrupt global trade.”

Moreover, with CPI rising across the eurozone from 2.4% in April to 2.6% May, policy makers will be under no illusion that challenges remain in the battle to bring inflation back down to 2%.

The ECB now joins the likes of the SNB, BoC, and the Riksbank who have loosened monetary conditions. Attention now turns to the Fed and BoE later this month.

US Labour Market Data

At 1330 this afternoon, attention will turn to the release of US labour market data. Here, the general market consensus is expecting a Nonfarms payroll print of 185,000 marking a slight uptick from last month’s figure of 175,000.

Given that last month’s figure was the lowest in six months, the print may be indicative of some softening in the world’s largest economy’s jobs market. This of course follows a historically tight episode from the US labour market.

As we looked at last month, while analysts are pointing to a softer print it remains well above the 100,000 figure that last year Powell cited as a level which is in line with population growth while not overly impacting inflationary pressures.

Elsewhere, unemployment is expected to remain unchanged at 3.9%, while average hourly earnings are expected to have risen 0.3% – a slight uptick from last month’s figure of 0.2%.

With markets continuing to consider the Fed’s future monetary pathway, today’s labour market data will be hotly anticipated as participants look to gain an insight into the health of the world’s largest economy.

Gold

Gold prices continued to rise yesterday as they appreciated to two-week highs and look set their make their first weekly gain in three weeks. Prices rose past $2,385 dollars per ounce in early morning trading as investors continued to consider the impact that US labour data – released this afternoon – could impact the Fed’s monetary pathway.

Gold is trading at around 20% up on the year, having advanced some 3% on the month.

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