Forex Flash: ECB rate cut speculation intensifying - Societe Generale

FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes Weak IFO out of Germany and weak durable goods orders out of the US further highlighted the current growth air pocket.

He adds that speculation on an ECB rate cut next week is rising and in house economists still expect no change in the ECB rate, but instead think that the ECB is more likely to announce new non-standard measures. He writes, “The broken monetary transmission mechanism means that a rate cut is not going to be very effective, though it might have a psychological effect. "Animal spirits" are important though amorphous. A more targeted policy aimed at getting cheap credit out to the periphery would be more directly effective. We keep short euro.” Elsewhere in Italy, Galy notes that there is a new Italian Government after a two month wait and the big winner out of the political mess is Berlusconi who has outlasted Monti and Bersani. He writes, “That is enough to tell you that we cannot expect much from the new government in terms of undertaking difficult structural reforms, and it is also likely to be short-lived.”