UBS believes that ECB President Lagarde's early departure is unlikely to change the ECB's monetary policy prospects. It is expected that the transition of leadership will proceed smoothly, and future interest rate trends will still mainly depend on inflation, wages, economic growth, and financing conditions. In terms of monetary policy, although the ECB has raised interest rates twice this year, and inflation is still about double the target, UBS believes that the cumulative 75 basis points expected by the market may be too high. Higher energy prices make a December rate hike still possible, but the ECB is more likely to wait for further evidence of continued inflation. In terms of the bond market, UBS expects the yield on Eurozone sovereign bonds to gradually decline in 2027, but considering fiscal risks and increased bond issuance, it is more optimistic about short to medium term high-rated bonds, including institutional bonds, guaranteed bonds, and investment-grade corporate bonds. In terms of the foreign exchange market, UBS believes that the recent decline in the euro has exceeded the extent that fundamentals can explain, maintains the forecast that the euro will recover to 1.16 by the end of the year, and suggests gradually reducing excessive exposure to the US dollar. However, energy prices, monetary policy differentiation, interest spreads on sovereign bonds, and the geopolitical situation are still likely to exacerbate exchange rate fluctuations.

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