ECB to lead easing

The European Central Bank (ECB) is expected to lead the world’s largest central banks in cutting interest rates. Investors are betting that the European Central Bank (ECB) will lead the world’s largest central banks in cutting interest rates after one of the region’s most hawkish policymakers described a slowdown in inflation as “encouraging.” Markets are pricing in an almost 90% chance that the ECB will begin an easing cycle in the first quarter of next year. There is currently a 100% chance of a five-point cut and an 80% chance of an additional quarter-point cut. That would suggest the ECB deposit rate is expected to be cut by 150 basis points to 2.5%. Expectations of central bank rate cuts have been rising around the world recently, with one of the most hawkish members of the ECB, Isabel Schnabel, saying that inflation was slowing “notably” and that another hike was “very unlikely.” If traders are right, the ECB will be the first of the major central banks to cut interest rates next year, and will be in line for its most aggressive easing cycle. The Fed is expected to make its first rate cut in May, by 125 basis points. The Bank of England is also priced in for three 25 basis point cuts starting in June, with a 30% chance of a fourth rate cut. Meanwhile, a government bond index that excludes US bonds climbed to its highest level since April 2022 as expectations of a global rate cut increased.