Stagflation concerns and ECB at end of tightening cycle may continue to weigh on EUR – OCBC
EUR/USD traded a “buy on rumor, sell on fact” into the ECB meeting last week. Economists at OCBC Bank analyze the pair’s outlook.
USD to drive direction
Near term, stagflation concerns in EU and ECB at end of tightening cycle may continue to weigh on EUR. That said with ECB behind us, EUR’s outlook would also depend on how USD, USTs trade and FoMC decision may offer some guidance.
We are neutral on EUR’s outlook as growth in Euro area looks to slow while the ECB tightening cycle is likely near its end.
With the Fed potentially closer to a pivot as early as 1Q 2024 vs. ECB in 2H 2024), some degree of convergence in ECB-Fed monetary policies is still likely and that could still marginally be supportive of a mild upward trajectory into 2024.
The key risks to EUR’s outlook are an earlier-than-expected dovish ECB pivot and/or growth momentum in Euro area continues to decelerate sharply.