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ECB: Approaching Cruising Altitude
While the European Central Bank (ECB) signaled it might increase its deposit rate further after July’s quarter-point hike, the focus is gradually transitioning away from the precise level of peak interest rates and towards how long they will stay at that peak. We believe the risks remain skewed towards later policy rate cuts than futures markets are now pricing. Uncertainty around the inflation trajectory remains elevated, complicating the ECB’s decisions. While economic momentum in the euro area has weakened materially, pointing towards stagnation at midyear, labour markets remain strong and inflation is likely ... (full story)