Euro: Fiscal risks cap upside against US Dollar – BBH

Brown Brothers Harriman (BBH) strategist Elias Haddad reports EUR/USD trading defensively below 1.1200 after weaker-than-expected Eurozone PMI, which still signals robust growth. Above-target inflation and resilience give the ECB room for more hikes, limiting divergence with the Fed, but he warns France’s fiscal troubles could push EUR/USD down toward the 1.1000 level.

Euro defensive on weaker PMI

"EUR/USD is on the defensive under 1.1200. The Eurozone October PMI was weaker than anticipated, but still indicative of robust growth. The composite PMI fell to a four-month low at 51.9 (consensus: 52.7) vs. 53.1 in September."

"The details showed both services and manufacturing activity slowed, with French private sector output moving back into contraction."

"Above target Eurozone inflation and a resilient 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, France’s fiscal troubles can drive EUR/USD down to 1.1000."

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