Money markets fully price in ECB rate cut in July

LONDON, Feb 27 (Reuters) – Euro zone money markets now fully price in the probability of a rate cut from the European Central Bank at its July meeting, as fears of the economic impact of coronavirus continue to grow.

Eonia money market futures dated to the July meeting were on Thursday fully pricing in a 10 basis point cuts. The probability is up from around 80% earlier in the day.

“We think that dovish pricing is overdone given that the we have the review going on and the ECB keeps stressing the importance of the fiscal side,” said Peter McCallum, rates strategist at Mizuho.

“So the market is a bit premature in what it is pricing in, but we do think a rate cut will come later — after the Fed has lined up a cut its own.”

Markets also now price in a near full chance of rate cut at the bank’s June meeting as investors have intensified their bets on central bank stimulus this week. (Reporting by Yoruk Bahceli; Editing by Dhara Ranasinghe)

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