The Euro is trading heavily below 1.1200 against the US dollar ahead of the release of the European Central Bank (ECB) Account from the September 9-10 policy meeting, according to Brown Brothers Harriman’s (BBH) Elias Haddad [1]. At that meeting, the ECB unanimously voted to raise its policy rate by 25 basis points to 2.50% [1]. The forthcoming Account is expected to reinforce the case for further rate hikes, although BBH notes that the message may appear somewhat dated due to the recent surge in bond yields [1].
Above-target Eurozone inflation and a firmer growth outlook provide the ECB with scope to implement additional tightening measures, with the swaps curve indicating nearly 75 basis points of further tightening to 3.25% over the next twelve months [1]. This outlook limits policy divergence with the US Federal Reserve and reduces the drag on EUR/USD [1].
However, the report highlights that stronger US growth compared to the Eurozone and France’s worsening budget crisis continue to skew EUR/USD risks to the downside in the coming months [1]. No specific market reactions or analyst forecasts beyond these points are provided in the source article.
CONCLUSION
The ECB Account is anticipated to support the case for further rate hikes, driven by persistent inflation and a positive growth outlook in the Eurozone. Nevertheless, relative US economic strength and fiscal concerns in France are expected to keep downward pressure on the Euro in the near term.