Synopsis:

BofA anticipates a 25bp rate cut from the ECB next week, but expects the central bank to maintain a relatively hawkish stance despite weaker Eurozone data compared to the US. The ECB is expected to stick to its data-dependent approach and meeting-by-meeting strategy.

Key Points:

• Rate Cut Expectation: BofA forecasts a 25bp rate cut from the ECB, which is fully anticipated by the market.
• Tone and Approach: Despite the cut, the ECB is expected to maintain its cautious tone, emphasizing data-dependence and a meeting-by-meeting approach.
• Core Inflation: Core inflation, particularly in services, remains persistently high.
• Unemployment Rate: The unemployment rate in the Eurozone remains at an all-time low.
• Internal Discussions: There are risks of a more dovish stance due to weakening growth and internal ECB discussions, but this is not expected to match the dovish tone of the Fed.

Conclusion:

BofA predicts that while the ECB will deliver a rate cut next week, it will likely adopt a relatively hawkish tone compared to the Fed. The central bank’s cautious approach reflects ongoing concerns about sticky core inflation and low unemployment, despite the weaker growth outlook.