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The lack of expected fiscal stimulus from China and the downward revision of Germany’s GDP forecast by the government has put pressure on the euro. Even the passionate speech by Slovak Central Bank Governor Peter Kazimir did not support the EUR/USD bulls. He expressed doubts about a rate cut at the ECB meeting on October 17, although markets consider it a done deal. He noted that making a decision based on a single inflation report is reckless. It is worth noting that in September, the CPI fell below the European Central Bank’s target.
Dynamics of European Inflation
Other hawks in the Governing Council were more accommodating. Isabel Schnabel expressed concerns about the slowdown in the Eurozone’s economy and discussed the potential return of deflation. Joachim Nagel stated that he is ready to consider the idea of easing monetary policy at the upcoming meeting. In contrast, the doves are ready to act. Francois Villeroy de Galhau called the next step toward monetary expansion very likely, while Yannis Stournaras sees two more such steps by the end of 2024.
Meanwhile, the German government has revised down its GDP growth forecast. In April, Berlin expected a 0.3% expansion in the economy, but it now predicts a 0.2% contraction in 2024. This would be only the second decline in GDP since 1990, when Germany reunified.
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