Today, a rate cut is highly possible by the European Central Bank (ECB) with forward pricing of nearly 25 basis points. On the other hand, Barclays strategists anticipate that the Swiss franc will continue to decline as the Swiss National Bank (SNB) reduces interest rates faster than initially anticipated to undermine the currency and prevent excessive disinflation. As a result, price fluctuation in EURCHF currency pair is highly possible, creating a decent trading opportunity.
ECB Meeting: A Rate Cut Knocks
Despite the current rate cut by the ECB, June is still being determined, with a possibility of a second consecutive reduction in July. The likelihood of a third cut this year is still being determined, even though a second cut is nearly completely priced by October.
Additionally, international factors impact long-term pricing. Rates in the eurozone have decreased due to declining oil prices and weaker US data. Recent domestic data on negotiated wages and CPI suggest a more hawkish stance at the upcoming meeting, despite EUR markets contemplating a three-cut scenario for this year.
As a result, markets may reprice higher, However, they are expected to fluctuate between two and three cuts for the time being unless additional data provides more clarity. This uncertainty will also influence the longer end of the curve, with international factors playing a significant role, particularly in light of the forthcoming US employment data. This will determine whether the 10-year Bund yield can maintain above 2.6% in a hawkish ECB stance.
