We are cautious about the dovish bias for EUR/USD ahead of the 25 bps rate cut expected at the European Central Bank meeting on October 17, DBS’ FX analyst Philip Wee notes.

ECB is not prepared to declare victory on inflation

“Although CPI inflation fell below the 2% target in September, the ECB is not prepared to declare victory on inflation because stubborn services inflation and a tight labour market have kept core inflation high at 2.7% YoY in September.”

“On October 15, worries about the German economy could ease if the ZEW Sentiment Index rises for the first time in four months to 10 (consensus) in October from 3.6 in September.”

“Germany’s industrial production expanded 2.9% MoM in August; consensus had expected a milder recovery to 0.8% after the 2.9% contraction in July.”