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The European Central Bank (ECB) sent strong signals that another easing package would be in store at the next meeting in December, as the economic outlook had darkened notably, mentions Jan von Gerich, Chief Analyst at Nordea. He points out the stance leaves some more room for bond yields and EUR/USD to fall further.

Key Quotes: 

“In the short end of the curve, the market prices in more than 10bp lower rates until next autumn, implying another 10bp deposit rate cut is in prices. We do not expect the ECB to cut the deposit rate further, as the Governing Council has not shown appetite for further rate cuts lately and has focused on other forms of easing. A further cut in the TLTRO rate looks more likely. Nevertheless, another deposit rate cut cannot be fully excluded, if the investigations ongoing in the ECB committees resulted in a recommendation of another rate cut and the EUR strengthened ahead of the ECB meeting. The tiering multiplier could also be increased in December.”

“On the FX front, the ECB has now confirmed it would fight a rapid strengthening of the EUR and together with the negative Euro-area economic momentum such a message should help to keep EUR/USD heading lower in the near term.”