It wasn't supposed to be rate cuts in back-to-back months for the ECB when they did so in September. But alas, here we are. Softer economic data gave markets an opportunity to lead the ECB down this path and policymakers look to be embracing that.
Hence, expect the rate cut today to be one positioned in a way alluding to economic weakness and getting ahead of the curve. At the same time, inflation developments have been supportive as well so that's a bonus.
So, what comes next for the ECB?
Traders are already fully pricing in another rate cut after today, which will be for December. And looking out to June net year, there is ~147 bps of rate cuts priced in. There will be six meetings between now and then. So, traders have pretty much priced in a 25 bps rate cut at each and every meeting until the first half of 2025.
One can argue it's as dovish an outlook as can be. But the thing is, how dovish will also still be subject to how the Eurozone economy performs going into next year. It could possibly be a case of markets trying to corner the ECB into a 50 bps move earlier if inflation pressures hold as they are as well.
And that might yet keep a divergence between the dollar and euro. The US economy looks set for a comfortable soft landing but conditions in Europe are in a rough spot and may get tougher. That especially if the supposed rebound in China doesn't materialise. And that will be a setback for Germany in particular.
For now, the ECB is likely to play things accordingly. Their meeting by meeting approach has worked well in guiding markets during the policy cycle. No need to change that up.