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Investors almost rule out the possibility of rising interest rates by the European Central Bank (ECB) next year, due to the cautious comments, the appreciation of the euro and the depressed inflation.

Mario Draghi’s comments in June were read, as a signal for policy change, and markets considered that the ECB could raise interest rates by the middle of 2018. However, these expectations were revised following recent cautious comments by central bank representatives and inflation, which is below the target of 2%.

Forward contracts at the average interbank interest rate Eonia are carefully monitored precisely because they show what are the expectations of the interest markets. These contracts, which date back to June 2018, include a value of -0.35%, which is only one basis point above the Eonia spot (-0.36%). This means that, according to markets, there is a 10% probability of raising the interest rate by 10 basis points by June 2018. By comparison, at the beginning of July, these chances were nearly 100%.

Mario Draghi did not sent any signal at the Jackson Hall, and today the Euro exchange rate is 1.20 USD. That’s why most people do not believe there will be an increase in interest rates before next year. The Euro has risen by more than 14% against the US dollar this year, which lowers import prices and keeps inflation low. According to latest data, the consumer price inflation in the Eurozone is 1.3%.

Markets see about 30% chance of raising deposit interest rates by September 2018 and about 60% chance of it happening by the end of next year.

