May 23, 2018 / 9:48 AM / a year ago

Investors scale back ECB rate hike bets after weak PMI

FILE PHOTO: European Union flags flutter outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

LONDON (Reuters) - Euro zone money markets are pricing less than a 60 percent chance of a 10 basis point interest-rate rise from the European Central Bank by mid-2019, scaling back rate hike bets after Wednesday’s weaker-than-expected business activity data.

The difference between the overnight bank-to-bank interest rate for the euro zone (Eonia) and forward Eonia rates dated for the ECB’s June 2019 meeting was 5.8 basis points on Wednesday, down from 9 bps last week and 8 bps earlier this week. ECBWATCH.

Analysts say that means investors are pricing in less than a 60 percent chance of a 10 basis point increase in the ECB’s deposit rate — the minimum it is likely to increase — from minus 0.4 percent currently.

IHS Markit said earlier on Wednesday its Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good guide to economic health, sank in May to an 18-month low of 54.1 from 55.1, below all forecasts in a Reuters poll which predicted a dip to 55.0.

Reporting by Dhara Ranasinghe, Editing by Abhinav Ramnarayan

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