At its last meeting, the Governing Council of the European Central Bank decided to keep the three key interest rates unchanged, arguing that inflation is on target and current policy is “in the right place”. This is the second break in the easing cycle, which has eased market expectations for rapid reductions in the cost of money in the euro area.
In practice, the effect is a relative stabilization of exchange rates and moderate support for European equities — however, the statements of the Council members (e.g. Makhlouf) suggest that the easing cycle is approaching a low, so the room for further cuts may be limited. Investors should keep an eye on HICP inflation data and signals from the euro area labour market. R
Strategy: If you have exposure to Euro-structured assets, consider maintaining positions in sectors sensitive to domestic consumption, and in your bond portfolio, prefer shorter durations and currency diversification.