The British pound achieved a remarkable milestone today, touching its highest level against the euro since the Brexit referendum following the European Central Bank’s fourth interest rate cut of 2024. The decision saw rates lowered to 3 per cent, marking a significant shift in the eurozone’s monetary policy stance.
Sterling briefly peaked at €1.215 before settling at €1.211, whilst the euro weakened against the US dollar, approaching parity at $1.04. The ECB’s decision to implement a 0.25 percentage point cut was driven by fresh forecasts indicating inflation would fall below the target rate of 2 per cent by 2026.
ECB President Christine Lagarde emphasised that despite progress, victory over inflation remains incomplete. The central bank’s forecasts paint a cautious picture, with eurozone growth projected at just 0.7 per cent this year, rising modestly to 1.1 per cent in 2025.
Market reactions were mixed across European indices, with Germany’s DAX achieving consecutive record closes whilst the Euro Stoxx and CAC40 experienced marginal declines. Bond yields saw upward movement, with German bunds reflecting heightened market activity.
The divergence between central bank policies continues to favour sterling, as markets anticipate the ECB to cut rates more aggressively than both the Bank of England and the Federal Reserve. Predictions suggest eurozone rates could fall to 1.5-1.75 per cent next year, potentially involving up to eight rate reductions.
Challenges remain on the horizon, including potential trade disruptions, political uncertainty, and concerns over Chinese economic recovery. The ECB’s decisively dovish stance signals a clear trajectory for future rate movements, though questions persist about the pace of change.
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