Investors eye ECB rate cuts as economy weakens

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Traders are standing firm on bets that the European Central Bank will cut interest rates next year, challenging the bank's 'higher rates for longer' signal in the face of a souring economy.

Article originally published by Reuters. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Published by

15 Sep 2023

The European Central Bank raised its key rate to a record 4% on Thursday and revised up its inflation forecast for next year, but with the euro zone economy in the doldrums, it signalled that the hike was likely its last.

Traders cheered the expected end of rate hikes that have raised borrowing costs from minus 0.5% in just over a year. That sent euro zone government bond yields tumbling, the euro down and stocks higher.

Italian government bonds, a proxy for euro area risks, led the rally. Benchmark 10-year yields fell as much as 15 basis points (bps) and were set for their biggest one-day drop in three weeks.

«The consensus is that this was a dovish hike, the last one and it's clear skies from here,» said Charles Diebel, head of fixed income strategy at Mediolanum Asset Management.

The decision had been on a knife edge as policymakers and investors had to