ECB VIEW: MS Delay Next Rate Cut Call, Still One Of Most Dovish Analysts
Morgan Stanley yesterday changed their ECB call and now expect a next rate cut in Jun 2026 vs March previously. They keep the terminal rate call at 1.5% but stronger data have increased the risk to their call. This leaves MS at the clear dovish end of analysts, with most expecting a 2% terminal rate and next moves generally viewed as hikes albeit some time away with the earliest we’ve seen being TD Securities looking for late 2026. We're still reviewing latest analyst views.
- “The new projections show stronger growth and higher inflation, more than we anticipated. Today's meeting, stronger data and stickier inflation have raised the bar for further easing.”
- “We now expect the first cut in June 2026 (instead of March), followed by another in September, contingent on weaker growth, faster inflation deceleration, and more euro appreciation.”
- “We maintain our view of a 1.5% terminal rate in 2026, but risks that the ECB will keep rates on hold for longer have clearly increased.”
- “With cuts basically not priced in, the market has little ability to reprice in the direction of “fewer cuts.” We continue to favour long positions at the short end of the curve and maintain Feb-Jun ECB flattening.”
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FOREX: FX OPTION EXPIRY
Of note:
EURUSD 1.47bn at 1.1600.
EURUSD 4.94bn at 1.1600/1.1650 (thu).
USDJPY 1.49bn at 155.00 (thu).
USDCNY 2bn at 7.1080/7.1089 (thu).
USDZAR 1.35bn at 17.20/17.28 (thu).
USDCAD 1.2bn at 1.3950/1.3970 (fri).
AUDUSD 2.28bn at 0.6550 (fri).
EURUSD 1.38bn at 1.1625 (tue).
- EURUSD: 1.1575 (630mln), 1.1600 (1.47bn).
- GBPUSD: 1.3100 (550mln), 1.3200 (408mln).
- USDJPY: 155.50 (617mln).
- USDZAR: 7.1000 (461mln).
STIR: SFIZ5/Z6 Spread Affirms View That This CPI Will Not Impact BoE MT
Price action in SFIZ5/Z6 affirms out view that this morning’s CPI data will have little impact on BoE policy over the medium-term. Spread last trades 0.5bp higher at -37.0 after recovering from session lows of -39.0. Multi-week range of -43.0 to -31.5 intact. -43.0 represents the cycle low for the spread.
JAPAN: USDJPY Hits New Cycle High as Katayama Seems Unbothered on JPY Weakness
- "*KATAYAMA: WILL MAKE TECHNICAL TWEAK TO BOJ-GOVT ACCORD" - BBG
- "*KATAYAMA: WON'T CHANGE OVERALL DIRECTION IN JOINT ACCORD"
- "*KATAYAMA: DIDN'T SPECIFICALLY TALK ABOUT FX WITH UEDA" - BBG
USDJPY rises through yesterday's highs to hit a new cycle high on these Katayama comments - as noted just above no new news stemming from the headline but the market is be noticing that the finance minister "did not specifically talk about FX", possibly suggesting JPY weakness is not the highest priority - even with USDJPY, EURJPY at cycle highs.
- Meanwhile JGB futures are unreactive to the headlines, -8 vs. settlement levels as wider core global FI markets tick away from session highs.
- We noted earlier this week that the JPY has proved immune to the recent weakness for major equity benchmarks as well as the more forceful verbal warnings from Japanese officials on one-sided adjustments for the currency.
- The next level on the topside for USDJPY is at 155.89, the Feb 3 high, however, more meaningful resistance is at 156.75, the Jan 23 high. For EURJPY, targets rely on technical projections, with 180.37, 181.01 and 181.70 the next levels of note based on the Jul 31 - Sep 29 - Oct 2 price swing.
