Kit Juckes, Chief Global FX Strategist at Société Générale, analyzes the sequencing and extent of easing to come by the Federal, the Bank of England and the European Central Bank.
Fed to ease before the BoE or the ECB
The market prices the ECB cutting before the Fed, which cuts before the UK MPC. Our economists think the order will be Fed, BoE, ECB. And while we look for the FOMC to cut rates by 150 bps in 2024, and for the BoE to cut by 125 bps, we expect a measly 25 bps from the ECB. That will take the Fed-ECB gap to even tighter levels than was the case in 2020 when EUR/USD traded up to 1.23.
I think the chance of EUR/USD making it back to 1.20 in 2024 is very slim indeed, but more narrowing in rate differentials than is priced in by the market seems likely and the euro will get some support from that.