Pimco and Fidelity Anticipate Further Rate Cuts from the ECB

Forex - Pacific Investment Management Co. and Fidelity International are among investors who believe that the deteriorating economic outlook in Europe could force policymakers to cut interest rates more than the market expects. Recent market pricing indicates that the European Central Bank is likely to lower rates to 3% on Thursday for the third consecutive time, with a further reduction to 1.75% anticipated next year. However, according to Bloomberg News, Fidelity suggests that borrowing costs could drop as low as 1.5%, while Pimco sees a risk of a more significant decrease.

In 2024, better performance of European debt compared to US and UK bond markets could strengthen the repricing rally. Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity, stated that the market "continues to be a bit more hawkish than our expectations." Ahmed added, "If downside risks materialize, there is a risk that the ECB will need to cut further." Konstantin Veit, a portfolio manager at Pimco, remarked, "We believe that growth will continue to be weaker than the ECB expects, and we see the potential for markets to price in lower terminal rates. The flow of data in the coming months will determine the pace and scale of monetary easing."