06:03 AM EDT, 10/18/2024 (MT Newswires) -- European Central Bank President Christine Lagarde sounded a bit more dovish than usual at Thursday's post-meeting press conference, noted ING.

Lagarde emphasized the ECB's greater confidence in the disinflation path, and while she said the activity picture only influences policy decisions insofar as it affects inflation, the general perception is that the focus has started to shift from inflation to growth, wrote the bank in a note.

ING points out that the drop in September's headline inflation was in line with the ECB's projections, so it must have been the grim PMIs that tilted the balance to the dovish side on Thursday. Lagarde repeated at least twice that the ECB is data-dependent and not data-point dependent, but a dovish reaction to an activity survey would instead point to the latter.

If indeed the focus is now more on growth, the bank can probably conclude that the ECB will keep cutting, as the activity outlook will hardly improve much in the near term. Financial markets agree and are pricing in 100bps of easing in the next four meetings (December, January, March and April).

That is probably the maximum the ECB can deliver, and there are risks of some hawkish repricing helping front-end euro rates around the turn of the year, stated ING.

However, with regards to the near-term picture, the euro is left weaker, with more limited room for a rebound as the two-year swap rate gap with the US dollar is now at -140bps, the widest since May. This is consistent with EUR/USD trading below 1.080, and given the risks are skewed to a firmer USD into a closely contested United States election, 1.070 is well within reach before month-end.

September's better-than-expected United Kingdom retail sales data, which comes on the heels of decent August growth, is another sign that the economy is still performing relatively solidly, noted the bank. The consumer is benefiting from strong real wage growth, though ING doesn't expect the growth rates it saw in the first half of the year to be repeated in the second.

Still, growth data is of secondary interest to the Bank of England right now. This week's surprise dip in services inflation is more important, suggesting back-to-back rate cuts are becoming more likely.

Sterling (GBP) has proven to be a bit more resilient than the bank had thought after that sharp downward surprise in services inflation on Wednesday. Cable has hovered around the 1.30 mark, and so far failed to make another decisive move lower. Still, ING thinks the balance of risks remains skewed to the downside.

Even with less than two BoE cuts priced in by year-end, the two-year swap rate gap between sterling and the dollar has now tightened to 19bps from 55bps at the start of October. The last time the bank saw that spread around these levels -- early August -- GBP/USD was trading at 1.28, and barring major U.S. data downside surprises, ING sees no strong argument against a move to that level.

As expected, the Central Bank of Turkey (CBT) left rates unchanged at 50% on Thursday and added a bit to its hawkish communication. The statement turned cautious as a result of increasing uncertainty surrounding the pace of inflation improvements, added ING.

The CBT reiterated that its tight monetary stance would lead to a) a decline in the underlying trend of monthly inflation by moderating domestic demand, b) real appreciation in the Turkish lira (TRY) and c) an improvement in inflation expectations.

The bank believes there could be room for a first rate cut in December, but it will, of course, depend on the October and November inflation numbers. On the positive side, the CBT seems to be aware of the situation and the risk of a mistake is diminishing, which should confirm the bulls in the TRY market, according to ING.