i

Important security note: Warning of attempted fraud in the name of DWS

We have detected that fraudulent individuals are misusing the "DWS" trademark and the names of DWS employees on the internet and social media. These fraudsters are operating fake websites, Facebook pages, and WhatsApp groups. Please be aware that DWS does not have any Facebook Ambassador profiles or WhatsApp chats. If you receive any unexpected calls, messages, or emails claiming to be from DWS, exercise caution and do not make any payments or disclose personal information. We encourage you to report any suspicious activity to info@dws.com, including any relevant documents and the original fraudulent email. Additionally, if you believe you have been a victim of fraud, please notify your local authorities and take steps to protect yourself.

Jul 05, 2024 Central banks

After the June cut: what’s ahead for ECB rates

The ECB cut its policy rates in June, as expected. But that does not mean that the Frankfurt- based central bank will cut again in July.

Many analysts had considered it highly unlikely, however it actually happened: In June, the European Central Bank (ECB) cut interest rates, even though it was evident that the U.S. central bank (Fed) would not be ready to cut as well.

Upon closer examination, the ECB wasn't as bold as it seemed, as both the Swiss and Swedish central banks had already cut interest rates. And even in the race to be the first G7 country to lower rates, the Frankfurt-based monetary authority was outpaced by the Canadian central bank, although just by a few hours.

Now, attention turns to July 18th, when the ECB Council would have the next opportunity to cut interest rates. Ulrike Kastens, senior ECB watcher at DWS, doesn't expect another rate cut this time: “The path of interest rates in the coming quarters will differ significantly from the rate-cutting cycles of recent decades, when central banks had to step in to cushion a recession or mitigate the effects of a crisis. Now, it’s about scaling back the degree of monetary tightness.'

Western central banks are starting their easing journey from interest rate levels which are significantly above the neutral rate. This means that monetary policy is restrictive, which, intentionally, is dampening demand and slowing the economy in order to bring inflation rates back in line with the definition of price stability. The path ahead for the next quarters is likely to be a gradual scaling back of policy rates toward the neutral rate.

Expected path* of Euro money market rates

Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 7/2/24

* As priced by Euribor futures contracts

The market seems to subscribe to this view as well, as our 'Chart of the Week' shows. While at the beginning of the year, futures contracts were pricing no less than seven ECB rate cuts of 25 basis points each for 2024, market expectations have now been adjusted to a more realistic three rate cuts, corresponding to a year-end deposit rate of 3.25%. For 2025, the market originally anticipated a policy rate below 2%, while currently futures contracts imply interest rates to bottom out only in the second half of the decade, at a rate of around 2.5%.

Ulrike Kastens considers this a realistic assessment, especially in light of the still uncertain inflation development.

Subscribe to our CIO Daily

Get up to speed with markets – subscribe to the CIO Daily, your morning briefing to help guide informed investment decisions

I hereby subscribe to the newsletters of DWS International GmbH with market and economic information and / or information or offers about investment opportunities and agree to the data protection policy. I can unsubscribe from the newsletters at any time.
Subscribe

Read more

Discover more

CIO View