The ongoing surge higher for the price of gas in Europe has been encouraging market participants to price in more tightening from the Euopean Central Bank (ECB). Growth risks are set to keep the euro under pressure, however, economists at MUFG Bank report.
Greater risks of the ECB under-delivering on rate hikes compared to the Fed
“If EUR/USD does extend further lower (which we expect over the coming months) then it is likely to be natural gas related leading to lower GDP growth expectations and there will be little the ECB could do to influence FX in that circumstance.”
“Based on the current macro risks related to the energy crisis in Europe we still see greater risks of the ECB and the BoE under-delivering on rate hikes compared to the Fed.”
“The hit to growth in Europe will likely undermine the scope for tightening even as further EUR depreciation unfolds.”
