A Fed rate cut next week is all but a given now after the US CPI report here. But before we get to that, the central bank bonanza will be making a couple of stops in Europe following the Bank of Canada decision yesterday. The SNB and ECB are the two main events to watch in the day ahead.
Both central banks are expected to cut rates further to end the year. However, one decision will be less straightforward than the other.
On paper, both the SNB and ECB are expected to cut rates by 25 bps today. But in terms of market pricing, traders are attaching a ~58% probability of a 50 bps rate cut for the SNB with ~42% odds of a 25 bps move. As for the ECB decision, it should play out as according to what is expected and that is a 25 bps rate cut. That considering markets are pricing in ~85% odds of that with the remainder tied to a 50 bps move.
If the SNB does move by 50 bps today, that will bring the policy rate to 0.50%. In essence, it leaves very little room to work with as the economy weakens going into next year. So, they might think twice about that. But then again, the central bank might be forced into this to prevent any kneejerk strengthening in the Swiss franc currency. As such, there is a balance that needs to be struck.
As for the ECB, the disinflation path is facing a few bumps along the way. However, the euro area economy is facing a very rough patch to end the year with the outlook for next year not that much better. The threat of Trump tariffs is also a key consideration alongside increased political uncertainty in two of the region’s largest economies.
Considering their recent communique and the balance of risks from the data, a 25 bps move today fits with the ECB path with more rate cuts to come next year.
0830 GMT – SNB announces its December monetary policy decision
1315 GMT – ECB announces its December monetary policy decision
1345 GMT – ECB president Lagarde press conference
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.