Euro: Seen drifting toward 1.1400 against US Dollar – BBH

Brown Brothers Harriman’s Elias Haddad reports that EUR/USD briefly dipped toward 1.1500 after the ECB decision before rebounding on the US-Iran breakthrough. Haddad expects EUR/USD to edge lower and stabilize closer to 1.1400 as US growth outperforms the Eurozone. The ECB’s 25 bps hike and hawkish inflation stance are seen cushioning, but not reversing, Euro downside.

Euro pressured by weaker growth outlook

"EUR/USD dipped towards 1.1500 following yesterday’s ECB policy decision before rebounding to a high of 1.1590 driven by the positive US-Iran breakthrough. We expect EUR/USD to edge lower and stabilize closer to 1.1400, reflecting a stronger US growth outlook relative to the Eurozone. ECB rate hikes in a sluggish growth, high inflation environment, is not bullish for EUR but should help cushion the downside"

"As was widely expected, the ECB raised the policy rate 25bps to 2.25% because of rising inflation pressures. The decision was unanimous, with policymakers continuing to view risks to the inflation outlook as tilted to the upside and risk to the growth outlook skewed to the downside. Indeed, the ECB marked up its inflation forecasts and trimmed its real GDP growth projection for 2026 and 2027."

"The swaps markets price in 60% odds of a follow-up 25bps rate hike at the next July 23 meeting. We think the ECB can afford to be patient before tightening again. Cooling Eurozone wage growth and subdued demand conditions should help contain second-round inflation effects from the energy shock."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)