“The easing in Euro Area inflation in October provides a source for comfort, notably the sharp drop in the headline number, which is now below 3% for the first time in over two years. This should alleviate the squeeze on household purchasing power, and may elicit a dovish response from the European Central Bank, retrospectively supporting the bank’s call to effectively end its hiking cycle. We see it as very likely that the next move in ECB rates will be lower, with a first cut appearing probable before the end of Q2 next year. This is a bearish development for the euro, particularly given that US rates are likely to remain on hold until at least the second half of 2024.”
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