Dec. 18 at 6:59 PM
PickAlpha Mid-Day - ECB: Cuts likely done, but “data dependent” is code for don’t front-run the next shock
People familiar say ECB officials see the cutting cycle most likely finished; deposit rate could stay around 2% after eight cuts from 4%. Rates unchanged; growth forecasts raised; inflation seen back to ~2% in 2028 (with a dip below target in 2026–27). Markets price little near-term move.
Our view is that the base case is a long hold. The risk is asymmetric: any downside growth shock re-opens cuts, but hikes are still a distant conversation.
Pricing implication
EUR rates volatility likely stays compressed until a growth/inflation surprise breaks the range. That favors carry/quality in Europe, but limits upside for pure “rates down” trades.
$FXE $EWU $EZU