Thursday’s hawkish surprise from the European Central Bank (ECB), where it announced a faster APP taper, gave the euro only a short-lived boost to a one-week high. As the market is too aggressive about a September rate hike and amid geopolitical concerns, economists at Scotiabank note that the EUR/USD pair could fall to the 1.0350 mark.
Rate differentials will weigh on the euro over next few quarters
“Elevated geopolitical risks suggest to us that the ECB is highly unlikely to support market expectations of a 25bps hike in September over the coming months. As things stand and with large negative risks, we think the bank will wait to hike until Q1-2023. By then, the Fed will have already hiked by 225bps, and rate differentials will weigh on the EUR over the next few quarters.”
“We see the EUR weakening to the 1.06 level in the coming weeks, while a ramp-up in Russian aggression and signs of depressed growth in the bloc (possibly a recession ahead) could see the EUR aim for the ~1.0350 low of early-2017.”
