No surprises from the European Central Bank

The European Central Bank did not surprise investors. Hence, market volatility was limited. Interest rates were kept unchanged and Christine Lagarde again signaled during the press conference that there would be no further interest rate increases. Investors were looking for clues about possible reductions in the next year.

Volatility in the currency market was limited. EUR / USD exchange rate currently it constantly oscillates around the level of 1,0550.

The ECB will not be more restrictive

As expected, the ECB's refinancing rate remained at 4,5%. and the depository still shows 4%. The statement could read that the current level of the cost of money is consistent with 2 percent. inflation in the long run. Therefore, the announcement was similar to that from September. The PEPP program itself was not discussed at the meeting. However, speculations that the ECB may end reinvestments earlier have been put to rest. They will last at least until the end of 2024.

All indicates that EBC will no longer be more restrictive. As for inflation, it is expected to decline in line with the bank's expectations. The ECB forecasts that economic growth will amount to 1%. in 2024. Now the question is how long the bank will maintain this high level. Markets are currently pricing in rate cuts of over 50 basis points next year. This assumption can however, be too optimistic. As for inflation, it will probably stabilize well above 2024% in 2. This will be the effect of, among others: strong wage growth.

The labor market is in very good condition

Between the ECB decision and Lagarde's press conference, the market learned the US GDP reading for the third quarter. In the last three months, the United States economy has recorded strong growth, with real GDP growing by as much as 4,9 percent. Estimates showed a level of 4,3%. This the strongest growth in the last seven quarters. Going into details, we can see that private consumption increased by 4%. which gives a much higher growth dynamics compared to Q2, which was 0,8%. It can also be observed that part of the consumption was made up of Americans' savings. Their level has decreased. It can be assumed that the continuing very good condition of the labor market strengthened the level of consumer spending. However, the level of investment in fixed assets decreased. They grew by 1,6 percent. but this result is definitely worse than that recorded in the previous period (16,1%).

Next Wednesday, the Fed will decide on the shape of its monetary policy. Even though yesterday's data was good, still all the time the base scenario is a pause in price increases. A good result for Q3 was already signaled earlier by high-frequency data, so Thursday's publication CBA should not significantly influence the Federal Reserve's decision.

The market reaction was muted. Dax After the decision, he started to make up for his losses, but he still ended the day with a loss of 1%. minus. The euro gained slightly, although the volatility on the main currency pair was only 40 pips. The eurodollar is still oscillating around the level of 1,0550 and the pattern on the chart has not changed much in the medium term. The yield on 10-year German bonds fell from around 2,92 to 2,84 percent during the day.

Source: Łukasz Zembik, OANDA TMS Brokers