Euro: ECB caution meets France risk – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes the European Central Bank (ECB) is expected to hold rates at 2.50%, with markets still pricing a strong chance of a December hike to 2.75%. While contained core inflation and tighter financial conditions justify waiting, France’s fiscal and bond market strains are highlighted as a key risk that could leave EUR/USD vulnerable to further downside.

ECB hold overshadowed by French turmoil

"The ECB is widely expected to keep rates on hold at 2.50% after September’s 25bps hike. Contained Eurozone underlying inflation and tighter financial conditions give policymakers scope to wait."

"Nevertheless, resilient economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (75% priced in)."

"France’s bond market turmoil is likely to dominate ECB President Christine Lagarde’s press conference."

"Reassurance that the ECB stands ready to contain unwarranted contagion can cushion EUR, but France’s fiscal troubles leave EUR/USD vulnerable to a decline toward 1.1000."

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