The ECB’s September meeting account is due today, likely reaffirming policymakers’ view that monetary settings remain “in a good place” after holding rates steady at 2.00%. With inflation seen stabilizing near target and risks now balanced, markets price only limited chances of another cut. By contrast, expectations for deeper Fed easing over the next year highlight a growing policy divergence that continues to favor EUR/USD upside. Meanwhile, signs of political stabilization in France are lending modest support to local assets, BBH FX analysts report.

Markets split on further ECB cuts as inflation nears target

"The ECB’s Account of the September 10-11 policy meeting is published today (12:30pm London, 7:30am New York). At that meeting, the ECB left the policy rate steady at 2.00% for a third consecutive meeting (widely expected) and signaled that monetary policy settings remain in a “good place.” The ECB stressed that risks to the economic outlook are now balanced rather than to the downside and implied greater confidence that inflation is stabilizing around its 2% target."

"The swaps market continues to price-in about 50% odds that the ECB delivers one more 25bps cut in the next 12 months and the policy rate to bottom at 1.75%. We think the ECB is done easing. Meanwhile, futures fully price-in 100bps of Fed funds rate cut over the next 12 months. The risk is the Fed eases more because the US employment backdrop is increasingly fragile. Bottom line: relative ECB/Fed policy stance underpins the uptrend in EUR/USD."

"France’s political crisis is on a fragile stability path. French President Emmanuel Macron said he’ll name a new prime minister by Friday evening. A statement by the Elysee presidential office noted that “A majority of deputies oppose dissolution (of parliament); a platform for stability exists; a path is possible to adopt a budget by December 31.” French bonds and stocks are posting modest gains."