Forex Flash: ECB rate cuts on the horizon? – UBS

FXstreet.com (Barcelona) - In addition to the recent PMI figures, Germany's IFO data is also released this week. According to the UBS Research Team, “This is a survey that is likely to carry weight with policymakers and as a result the case for another ECB rate cut seems to be building. If the central bank does decide to ease in the next couple of months, it will likely cut its benchmark refinance lending rate from 0.75% to 0.50% - that would help push the euro down into a 1.28-1.30 range against the dollar.”

However, for now we do not expect the ECB to cut its deposit rate from 0%. Such a shift into negative interest rates would shock investors and banks and likely mean the euro would fall below our end year target of 1.20 against the dollar. “Instead, we expect the ECB will opt to cut its refi rate while it still has a 'corridor' between its lending and deposit rates.” they add.