JPMorgan Asset Management and Pictet break from market consensus, forecasting just one ECB rate cut in a ‘one and done’ scenario that may cap Bund rally and support EUR/USD.
JPMorgan AM and Pictet forecast only one ECB cut this cycle, lifting rate expectations relative to market pricing and narrowing the Fed-ECB gap. A less dovish ECB supports the euro, challenging the consensus view of deeper cuts that had weighed on the common currency.
It would narrow the policy divergence with the Fed, potentially lifting the euro toward 1.10 if markets reprice the ECB's terminal rate higher.
Not necessarily, as the view contradicts consensus; a rapid repricing may occur only if the ECB signals a hawkish shift in its official communication.
Targets around 1.09-1.10 are possible in the short term, but sustained gains would require confirmation from ECB officials.
The 'one and done' call implies the ECB will hold rates after a single cut, keeping Bund yields elevated near 2.5% and preventing a bond rally. Market repricing of rate expectations caps upside in German government debt prices.
It would keep yields elevated near current levels, as markets scale back expectations of multiple cuts; the 10-year Bund yield could rise toward 2.7% if the view gains traction.
Not immediately, as the 'one and done' view is still a minority call; investors may wait for ECB signals before reducing exposure.
If the ECB ultimately cuts more than once, Bund yields could fall sharply, validating consensus positions and causing a rally.
EUR/USD strength from a hawkish ECB repricing weighs on the dollar index, given the euro's dominant weight of 57.6%. The 'one and done' call infers a narrower Fed-ECB rate gap and a less supportive dollar environment.
The euro gains against the dollar, and since the euro is 57.6% of DXY, a stronger euro mechanically pushes the dollar index lower.
Yes, if the Fed unexpectedly tightens or global growth fears trigger safe-haven dollar buying.
JPMorgan AM and Pictet's 'one and done' ECB call implies higher-for-longer rates and a stronger euro, both headwinds for the export-heavy DAX index. Tighter policy lifts discount rates, compressing equity valuations, while currency strength hurts overseas earnings.
It may cap upside by keeping financing costs higher and boosting the euro, which hurts German exporters' competitiveness.
Autos and industrials, as they are export-focused and sensitive to both rates and currency strength.
JPMorgan AM and Pictet predict the ECB will deliver only one rate cut this cycle, diverging from market pricing that embeds deeper easing. Their 'one and done' view challenges consensus and may limit the rally in European government bonds. A hawkish repricing could lift the euro against the dollar, while weighing on eurozone equities.
It's a view from JPMorgan Asset Management and Pictet that the European Central Bank will cut interest rates only once in the current cycle, then hold, diverging from market pricing that anticipates deeper easing.
A shallower easing path would keep eurozone bond yields higher and potentially support the euro, impacting European equities and global forex markets.
Markets have priced in more than one cut, so a 'one and done' outcome would cause a hawkish repricing of rate expectations, triggering a selloff in bonds and a rally in the euro.