Fed Officials Surprised by Falling Inflation in 2023, Set New Criteria for Rate Cuts
One trader is using options to bet that the ECB's rate cuts will be twice the level currently expected by the market. Money market pricing corresponds to about 1.5 ECB rate cuts of 25 basis points each by June. This is a far cry from the three rate cuts of 25 basis points each that were widely expected earlier this year. A series of strong U.S. economic data eased market concerns about the growth outlook, prompting traders to lower their bets on the size of the Fed's rate cuts, and had a knock-on effect on Europe. According to two London-based traders, one trader took advantage of the downward revision to buy options linked to three-month Euribor futures. The trade will be profitable if the ECB cuts the deposit rate by 75 basis points to 3.25 per cent.
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