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Tuesday, 23rd April 2024
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Panellists disagree on likelihood of an ECB rate cut Back  
Each month, the Finance Markets Panel, which consists of leading Irish market participants and analysts, provide views on key financial markets, covering currencies, equities and the gilt markets.
This month’s contributors are: James Jordan, senior FX trader, Ulster Bank, Niall Dunne, treasury economist, Ulster Bank, Aziz McMahon, foreign exchange strategist, ABN AMRO, Dr. Dan McLoughlin, chief economist, Bank of Ireland, Alan O’Neill, head of corporate treasury, Barclays Bank, John Beggs, chief economist, AIB Group Treasury, Eugene Kiernan, head of asset allocation, Irish Life, Enda Coll, head of institutional treasury, Anglo Irish Bank.

Euro 1 month interbank rate
McMahon says that any lingering hopes for one final ECB rate cut are now dead in the water, due to evidence of recovery in January and expects one month rates to remain flat now. Dunne and Jordan agree and say that it is highly probable that the ECB chiefs will follow the Federal Reserve chairman, Alan Greenspan, by telling the market that rates are appropriate for now. They forecast that the EU base rate will stay at 3.25 until at least the second half of 2002. Coll on the other hand, expects that the ECB will cut interest rates by at least 25 basis points and possibly by 50 before June due to economic weakness in the euro zone. Kiernan says that on balance, he can also see the possibility of a further cut and that inflation data should allow it.

5-year euro swap rate
The 5-year euro swap rate was broadly unchanged over February as a whole at 4.75 per cent says Beggs, and he expects that the rate could rise slightly in March if there is further evidence of economic recovery in the US and euro zone economies.
The sterling/euro debate has become even more politicised than expected says Kiernan, and he can see sterling weakening in the coming months. O’Neill is in agreement and expects sterling to drift to the weaker side of its trading range versus euro at 0.62.

The euro remains under pressure says Beggs, and is expected to trade within $0.86-$0.875 during March. He predicts that the euro may not benefit from favourable euro economic data but will continue to be at the mercy of good US economic news. McMahon says that FX volatility is now the lowest since the introduction of the euro in 1999. While he expects euro/dollar to end the year at .84 as capital inflows to the US pick-up moderately, he sees some upside risk of a move to 0.88 over the coming month.

On equity markets, Kiernan predicts an up year. While he says that accounting issues have robbed the markets of some upward move in the short term, as the year progresses, better economic and profit news will provide support. McLaughlin says that equities will be buoyed by stronger economic data and the Dow will trade above 10500, as the market shakes off concerns about accounting standards.

10-year euro bond yield
Coll says that in the current environment, longer-term European yields are more likely to be influenced by news regarding prospects for a recovery in the US. This is likely to mean that yields should touch 5.25 per cent in the next two months.

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