Lagarde in A Tough Spot Today, As Business Climate Deteriorates in EU
Today is the day of reckoning for the Euro, as the European Central Bank will hold its monthly meeting shortly, with expectations that the ECB will refuse to hint at a rate cut. But, with the Eurozone economy still deteriorating, they might be forced to accept the start of policy easing soon, which would send the Euro crashing lower.
Many ECB members have been trying to push back on rate cut expectations in recent weeks after the FED signaled rate cuts in the December meeting. So, they will hold rates constant at a record high today and are expected to continue to reject investor forecasts for aggressive policy easing this spring, since ECB members have been insistent that even debating a policy reversal in March-April would be premature.
The ECB stopped raising interest rates in September and completed its fastest policy tightening cycle, but given that the pressure in prices has diminished as inflation cools, and further deterioration in the economic sentiment in the Eurozone, Christine Lagarde might slip a wink for upcoming policy easing.
Today the German Ifo business climate index for January posted another decline of more than 1 full points, while expectations were for an improvement to 86.7 points. the numbers were mostly weaker in all components, even the outlook index falling to begin the new year. That underlines the German economy’s current difficulties, which include a manufacturing slowdown, weak consumption activity, and persisting inflationary pressures.
Germany January Ifo Business Climate Index by Ifo – 25 January 2024
- Actual: 85.2
- Expected: 86.7
- Previous: 86.4 (revised to 86.3)
Current Conditions:
- Actual: 87.0
- Expected: 88.6
- Previous: 88.5
Outlook:
- Actual: 83.5
- Expected: 84.8
- Previous: 84.3 (revised to 84.2)
So economic pessimism remains high among investors in Germany, with the Ifo index which is the most significant leading indicator having slipped to its lowest level since the height of the pandemic in 2020. This month, the Ifo index fell to 85.2 points, down from 86.3 points previously. The small rebound in autumn was short-lived and has decreased for the second month in a row. So, after all the pushback on rate cuts, Lagarde might as well hint at tightening today, so we are keeping a close eye on the Euro pairs.
EUR/GBP Live Chart
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