Investors are betting that the European Central Bank will lead the way among big central banks in cutting interest rates next year, in a sign that many money managers think officials have already raised rates too far in their battle to tame inflation.
Traders in swaps markets are pricing in a high likelihood of the first cut in the ECB’s deposit rate of 4 per cent by March, and close to six quarter-point cuts by the end of the year, a steep increase from three or four cuts priced in late November.
The shift in expectations reflects a recent easing in inflation, but also investors’ nervousness about Europe’s darkening economic outlook, which intensified on Wednesday on much worse than expected German factory orders.
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