The European Central Bank’s (ECB) latest interest rate decision will be the main event for traders this week as they try to assess the likely path of interest rates in the eurozone.
The ECB was the first major central bank to start cutting interest rates back in June, but policymakers stressed they would be taking “data-dependent and meeting-by-meeting approach” in the months ahead.
Statements since then have played down the potential for another cut this time around on the back of stubborn domestic inflationary pressures.
Figures out this out earlier this month showed that inflation in the eurozone eased to 2.5 per cent, in line with expectations, but services inflation remained at 4.1 per cent. Looking forward, Christine Lagarde, President of the ECB, said that the path for inflation until the end of 2024 will be “bumpy”.
Wage growth has also remained too high while an improving economic outlook has strengthened the hawkish case. Minutes released from June’s meeting showed that some members saw the risks to the inflation outlook as tilted to the upside.
Last week, Klaas Knot, a member of the rate-setting body, played down to the case for any action on rates in July. “I don’t see a case for another rate cut in July,” he said.
Economists were doubtful that there would be any surprises from the ECB when it makes its decision on Thursday.
“It seems extremely unlikely that the ECB will cut rates again when they meet next week,” analysts at RBC said.
Carsten Brzeski, global head of macro at ING said “it is clear that the July meeting will probably be a non-event without any new rate action or rate guidance”.
Elsewhere it is a busy week of data for the UK, with inflation figures due out on Wednesday, labour market stats on Thursday before Friday’s double whammy of retail sales and public finances.
This round of data will be crucial in determining whether the Bank of England will feel comfortable cutting interest rates at its next meeting in August. Inflation is expected to remain at two per cent while wage growth will ease off to 5.7 per cent.
For watchers of the US economy, the most important event will be Wednesday’s retail sales. This will give some clues as to the strength of the economy. Markets expect a 0.1 per cent increase in retail sales month-on-month.