According to MUFG’s Lee Hardman, the EUR/USD currency pair is currently trading just above the 1.1400 level, which marks the lower boundary of its established 1.1400–1.1800 trading range over the past year [1]. The euro had previously faced selling pressure due to weaker economic data and diminished expectations for further European Central Bank (ECB) rate hikes. However, recent indicators, including stronger industrial output and improving economic confidence, have demonstrated the euro area's resilience [1].
Hardman notes that the resilience of the euro area economy is a positive factor for the euro, helping to limit further downside risk. Additionally, a faster-than-expected reversal of the energy price shock is expected to bolster investor sentiment towards both the euro area economy and the euro itself for the remainder of the year [1].
MUFG anticipates that improving cyclical momentum in the euro area will encourage EUR/USD to rebound towards the top of its established range. The bank also expects the ECB to implement one final rate hike in September, despite a significant easing of upside inflation risks [1].
CONCLUSION
The euro's resilience, supported by stronger data and improving sentiment, is expected to limit further downside and potentially drive EUR/USD higher within its established range. MUFG forecasts one final ECB rate hike in September, which could further support the euro's recovery.