Euro impact likely temporary from unwind of larger ECB cuts
Oct 30 (Reuters) -Welcome news out of Germany with a surprise rise in Q3 GDP, against expectations for a contraction. Meanwhile, German states have reported a pickup in inflation for October, suggesting a topside surprise in the national print.
With activity data showing some signs of some stability at the very least, this has allowed for a modest reprieve in the euro.
However, the upside in the single currency is likely to be a shallow one given the proximity of the U.S. election. That said, following recent attempts by the policy hawks at the ECB to pour cold water on a larger ECB cut, they now have the data to back up their rhetoric.
The probability of a 50 bps cut at the December meeting has fallen to 28% from 41%, which is more in line with the status quo that the central bank will press ahead with 25 bps cuts.
While the better than expected data out of Europe has helped put a floor under the euro, albeit a temporary one, there is also an element of traders prudently taking profit on dollar longs ahead of the U.S. election.
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ECB pricing outlook https://tmsnrt.rs/3AnpeUf
Justin McQueen is a Reuters market analyst. The views expressed are his own. Editing by Alison Williams
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