Euro: Moody’s reprieve fails to support EUR – MUFG

MUFG’s Derek Halpenny and Lee Hardman note the Euro has only modestly recovered after recent losses versus Pound and Japanese Yen, remaining the worst-performing G10 currency in October. Rising European natural gas prices, weaker French PMI data, and ongoing fiscal and political risks weigh on sentiment. Moody’s decision to keep France at Aa3 on negative watch offers limited support ahead of the ECB meeting.

Euro pressured by French risks

"The euro has gained modestly at the start of the new week after falling to fresh year-to-date lows against the pound and yen. It is currently the worst performing G10 currency this month undermined both rising energy prices and heightened investor concerns over fiscal and political risks in France."

"The price of natural gas in Europe has risen sharply this month by more than a third lifting it above EUR 90/MWh heading into the winter reinforcing stagflation risks for the euro area economy. So far this year the euro area economy has proven more resilient than expected to the energy price shock but the release of the euro area PMI survey at the end of last week signalled that growth momentum may be about to soften."

"We don’t expect Moody’s decision to leave their rating on hold to bring much relief for French bonds or the euro, although it may prevent further selling at the start of this week ahead of the ECB’s upcoming policy meeting."

"The ECB’s upcoming policy meeting has more potential to be a bigger market mover, although we believe it is too soon to expect the ECB to announce policy measures to support government bond markets."

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