EUR/USD lower, ECB’s Kazimir confident in ‘disinflation path’

The euro has edged lower on Monday. In the North American session, EUR/USD is trading at 1.0838, down 0.24% on the day.

ECB’s Kazimir says disinflation continuing

The European Central Bank lowered its key interest rate last week by a 25 basis points to 3.25%, the first back-to-back rate cuts since December 2011. The rate cut was the third time the ECB has lowered rates this year, as it has been aggressive in its rate-cutting cycling, totaling 75 basis points.

The rate statement from last week’s meeting noted that the “disinflationary process is well on track” and that the inflation outlook had improved due to “recent downside surprises” in economic activity. The September inflation report, released just before the rate announcement on Thursday, indicated that inflation dropped to 1.7% y/y, down from 1.8% in August. This was a milestone as it was the first time inflation has dropped below the ECB’s target of 2% since July 2021.

The optimistic stance was reiterated by ECB Governing Council member Peter Kazimir, who said on Monday that he expects inflation to drop to the 2% target in 2025. Kazimir said he was “increasingly confident that the disinflation path is on a solid footing” which would allow the ECB to continue cutting interest rates.

The ECB remains somewhat cautious, particularly over wage growth and services inflation which have been stubbornly high and are upside risks to the inflation outlook. Still, after three rate cuts this year it’s clear that the direction of the rate path is down and the markets expect the ECB to continue trimming rates right through to March 2025.

EUR/USD Technical

• EUR/USD has pushed below support at 1.0854 and is testing support at 1.0837. Below, there is support at 1.0808
• 1.0884 and 1.0900 are the next resistance lines

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