Oil price collapse reshapes policy path, while the threshold for the European Central Bank's second rate hike is quietly rising
- Since the June meeting, Brent crude oil has fallen by about 20% under the influence of the US-Iran memorandum. This decline caught policymakers off guard and has led to a noticeable softening of tone from the hawkish camp.
- The long policy pause from June to September originally left room for an energy price pullback, and this downside risk has now materialized. As a result, market confidence in a second rate hike has waned, and the narrative of a "one-time rate hike" has become increasingly solidified.
- Institutional sources have reinforced this shift, noting that the speed of the oil price decline has reduced the urgency for further policy tightening. Even officials known for their tough stance have admitted that the case for additional rate hikes at this stage is no longer sufficient.
- The latest inflation data does not challenge the above judgment. Preliminary figures from various regions in France and Germany are relatively soft, further confirming that the risk of policy rates having peaked is rising.
- On the euro exchange rate front, this slight dovish shift has appeared in market performance. The euro's rebound against the US dollar and the pound is relatively weak, and the euro remains under pressure near the lower end of its range against the pound. A clear drop below the 0.8600 level could open further room for a decline towards the mid-0.85 area.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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