ECB Rate Cut Expectations Deepen, BoE Implied Follows Suit

ECB and BoE rate cut expectations as implied by OIS swaps ticked higher Thursday, eyeing potential for larger rate cuts at some point later this year.

• ECB's Vujcic told an MNI event Thursday that 50bps cuts should not be excluded if warranted by incoming data, and while cuts are unlikely before the summer, earlier moves cannot be ruled out as the ECB pursues a meeting-by-meeting policy approach, he said.
• The usually hawkish-leaning Vujcic's remarks added around 9bp off ECB end-year rate cut pricing at one point, helping fade a hawkish intraday move after slightly above-expected US inflation data. The rate path at session close still included a first cut fully priced by April's meeting, with 141bp of reductions by year-end (5bp more than seen Wednesday).
• UK developments were relatively limited but the OIS rate path moved in line with Eurozone counterparts, and now includes 121bp in reductions by the BoE by end-2024, around 3bp more than seen at Wednesday's close.
• A first full cut in June is still implied, though there is now around 80% probability of a May MPC reduction, vs 72% as seen Wednesday. Friday morning sees UK GDP/activity data.