Euro: ECB Account seen reinforcing hike case – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that EUR/USD trades heavy below 1.1200 ahead of the ECB Account release. Above-target Eurozone inflation and a firmer growth outlook give the ECB scope for further tightening, limiting divergence with the Fed. However, stronger US growth and France’s worsening budget crisis keep EUR/USD risks skewed to the downside over the coming months.

Inflation and growth support more ECB hikes

"EUR/USD is trading heavy under 1.1200. The ECB Account of the September 9-10 policy meeting is due today (12:30pm London, 7:30am New York)."

"At that meeting, the ECB unanimously voted to raise the policy rate 25bps to 2.50%. The Account will likely reinforce the case for further hikes, but the message will look somewhat dated given the recent surge in bond yields."

"Above target Eurozone inflation and a firmer growth outlook give the ECB scope to deliver additional hikes. The swaps curve implies nearly 75bps of tightening to 3.25% in the next twelve months."

"That limits policy divergence with the Fed and the drag on EUR/USD. However, stronger US growth traction relative to the Eurozone and France’s worsening budget crisis keep EUR/USD risk skewed to the downside."

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