Deutsche Bank expects a further divergence in the near-term paths of Europe’s two major central banks, forecasting another rate cut from the Bank of England (BoE) this week (the Bank meet Thursday) while suggesting the European Central Bank (ECB) may now be finished with its own easing cycle.
In a note to clients, Deutsche Bank said it anticipates the BoE will lower Bank Rate by 25 basis points to 4.00% at its upcoming policy meeting on Thursday. That would mark the central bank’s fifth quarter-point cut this cycle, as policymakers continue to ease financial conditions amid cooling inflation and slowing domestic demand.
The UK update came alongside a shift in the bank’s stance on the eurozone. Deutsche Bank economists now believe the ECB has likely concluded its rate-cutting phase, citing improved clarity around the recent EU-U.S. trade deal and a more hawkish tone from ECB officials in recent communications.
- now think ECB is done with rate cuts
- did flag some residual risk of another cut, possibly in December or March, but less likely in September.
The updated call suggests Deutsche Bank sees the ECB adopting a more patient stance, particularly as incoming data shows signs of resilience and policymakers remain cautious about inflation risks.
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Deutsche Bank’s forecast divergence between the BoE and ECB could have meaningful implications for EUR/GBP. A BoE rate cut this week would likely exert modest downside pressure on the pound, especially if paired with dovish forward guidance. Conversely, the shift in ECB expectations—away from further easing—may offer support to the euro, particularly if euro area data continues to stabilise.
The combination could see EUR/GBP drift higher in the near term, although upside may be tempered if markets continue to price in lingering rate cut risk from Frankfurt later in the year.
This article was written by Eamonn Sheridan at investinglive.com.
