European Central Bank Interest Rate Movements Spark Market Adjustments

Money markets have adjusted their betting positions on the European Central Bank's interest rate decisions, now pricing in a 50% probability of a 25-basis-point cut by the year's end.

Previously, there had been a 58% probability of a cut in December, with near certainty just last week. However, a shift occurred following announcements of the U.S.-Japan trade deal and insights from the recent ECB meeting. President Christine Lagarde highlighted a high threshold for further cuts, leaving rates unchanged with an optimistic euro zone economic outlook.

The short-dated euro yield grew marginally, with Germany's two-year yield at 1.94%. Inflation data aligning with expectations diminishes the need for further cuts, as the ECB remains focused on long-term price stability. Longer-dated bond yields dipped, flattening curves, reflecting global interest rate movements and a Bank of Japan statement.

(With inputs from agencies.)