The 2009 outlook has already deteriorated beyond the ECB’s December forecasts and the Bank still has room to cut, says influential permanent board member Papademos. Look for a 50 basis point cut on January 15.
Anticipation of that cut should keep EUR/USD weighed down on shrinking interest rate differentials and a loss of credibility for the ECB. They are beginning to look as decisive as Hank Paulson by signaling a pause and then resumed rate cuts all in the same month. Nice of Trichet to trot out Papademos to take that bullet for him.
