Synopsis:

Danske anticipates a limited reaction in EUR/USD to the ECB's expected 25bp rate cut on September 12. The primary focus will be on the ECB's communication, particularly regarding future rate paths and the October meeting.

Key Points:

• ECB Rate Cut:

  • Expected Action: Analysts and markets expect the ECB to deliver a 25bp rate cut.
  • Economic Context: The ECB’s decision is supported by moderation in the labor market and economic activity, along with a slowdown in wage growth.

• FX Reaction:

  • Limited Movement: Given that the 25bp cut is fully priced in, a notable reaction in EUR/USD is not anticipated.
  • Communication Focus: The key will be the ECB's communication, especially hints regarding future rate paths and the October meeting.

• Future Considerations:

  • FOMC Meeting: The upcoming FOMC meeting on September 18 is expected to have a more significant impact on EUR/USD direction in the near term.

Conclusion:

Danske expects minimal movement in EUR/USD following the ECB's anticipated 25bp rate cut, with attention shifting to the ECB's communication on future rate paths. The FOMC meeting later in September is likely to play a more pivotal role in determining the near-term direction of EUR/USD.