Nomura Securities adjusted its forecast for the ECB's monetary policy, abandoning previous expectations of interest rate cuts in July.The financial services group currently anticipates that the ECB will cut interest rates by 25 basis points continuously in June, September, and December this year, followed by similar interest rate cuts in March, June, and September next year.
The ECB's next two interest rate decisions will be held on June 6 and July 18, respectively.
The reason why Nomura Securities decided to change its forecast for the ECB to cut interest ratesIt is based on several economic indicators: the Eurozone labor market and wages have shown elasticity, and service sector inflation continues.
Furthermore, economic growth in the Eurozone is rising, and the ECB's rhetoric has recently become more hawkish. These factors prompted Nomura Securities to anticipate that the ECB will adopt a more gradual approach to cutting interest rates.
Nomura kept the final interest rate forecast at 2.50%, indicating that it still expects the ECB to lower interest rates to the upper limit of what it sees as the neutral range. This revision included an additional rate cut in September of the following year to be consistent with this view of terminal interest rates.
Analysis by Nomura Securities shows that due to stronger economic activity data in the Eurozone, strong demand, encouraging labor markets, higher than expected wage growth, and continued inflation in the service sector, the ECB may take a more cautious pace of cutting interest rates to maintain a certain degree of monetary restrictions.
Furthermore, Nomura pointed out that even the traditional dovish ECB Governing Council members are advocating smaller interest rate cuts this year and supporting a slower pace of easing than initially anticipated.
Although the ECB's actions still depend on data, if the economic situation worsens, the ECB may take more aggressive measures to cut interest rates,However, Nomura Securities believes that the most likely situation is that the ECB will gradually cut interest rates three times this year.
Based on the above information, although Nomura believes that the ECB will not cut interest rates in July, he still believes that it will gradually cut interest rates 3 times this year, in June September and December, respectively. This will weigh on the euro and be wary of the risk of the euro falling back against the US dollar.
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At 10:41 Beijing time on May 20, EUR/USD was reported at 1.0873/74