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ECB/BoE Pricing Implies 100bp In First Year Cuts

STIR

Soft flash November Eurozone inflation data helped tip pricing for ECB cuts in 2024 to well over 100bp on Wednesday, with BoE cut pricing keeping pace.

  • Around 107bp of ECB rate reductions are now priced by futures markets for 2024, up 11bp on the day - by comparison, at the start of the week, the ERZ3-ERZ4 spread implied 80bp of reductions (see chart).
  • The first 25bp cut is just about cumulatively priced for April 2024 (vs June prior), with 50bp by July and 75bp by the September meeting.
  • For the BoE, there is around 100bp of Bank Rate cuts priced in the year following the Feb 2024/Mar 2024 peak - up 9bp on the day.
  • The first 25bp cut remains fully priced by Aug 2024 but that's creeping into June (around 85-90% implied cumulatively), with 50bp of reductions through September 2024.

Euribor Dec23-Dec24 Spread Source: BBG, MNI

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