📈 Will you get serious about investing in 2025? Take the first step with 50% off InvestingProClaim Offer

Looking beyond Europe's first rate cuts, the trajectory is less clear - Gavekal Research

Published 05/28/2024, 10:06 PM
© Reuters.
EUR/USD
-
GBP/USD
-
EUR/CHF
-

Gavekal Research analysts said in a note Tuesday that the trajectory looks unclear beyond an initial round of rate cuts in Europe.

In Western Europe, the rate-cutting train is "pulling out of the station," said the firm, noting that the Swiss National Bank and the Swedish Riksbank have already begun to cut, while the European Central Bank is all but certain to start cutting rates at its June 6 meeting.

In addition, even the United Kingdom's hotter-than-expected April inflation print is unlikely to stop the Bank of England from getting on board at its August 1 meeting once the election is in the rear-view mirror.

However, looking beyond those cuts, the path is uncertain. Analysts state that while the pronounced disinflationary trend of the last 18 months means central banks will be comfortable cutting -50bp to -75bp by the end of 2024, "their course beyond that will depend on the outlook for inflation into 2025 and how they choose to react to this developing outlook."

There are three broad scenarios for Western European inflation into 2025, said the firm. These are:

  • A central scenario where inflation gradually moderates to stabilize around central banks' 2% target. This is the scenario currently indicated by central bank forecasts.
  • A downside scenario where inflation falls significantly below target, threatening a return to the pre-pandemic deflationary environment.
  • And an upside scenario where inflation remains stuck above the central bank's 2% target.

"The downside scenario looks unlikely. This is partly because short-term cyclical dynamics point to an economic acceleration, not a slump into a deflationary recessionary spiral," writes the firm.

"But it is also because the structural domestic deflationary forces that prevailed in the 2010s are no longer in place," they add. "Inflation in Europe is therefore likely to settle at a higher level than in the past decade."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.