EUR/USD: It will be hard to sustain any rallies – MUFG
|Thursday saw the biggest trading range in EUR/USD since the US CPI data on 13th February. Economists at MUFG Bank analyze the pair’s outlook.
Can USD weaken on the back of increased risk appetite?
While German manufacturing remains in the doldrums, there are certainly some bright spots emerging with the services sector rebounding more than expected which bodes well for some pick-up in GDP growth in Q1 relative to the flat growth from Q4. It does in our view bode well for a more EUR-supportive economic backdrop emerging going forward. That makes sense from the perspective that a reversal of a far more damaging energy price shock in Europe should have a more notable impact on the data as it reverses.
The 2-year UST yield is 50 bps higher this month, slightly more than the move in Germany and with the equity market rally triggered by AI-related tech it makes it more questionable whether the Dollar can weaken on the back of increased risk appetite.
The latest forecasts show 2.7% CPI in 2024; 2.1% in 2025 and 1.9% in 2026. A cut to the 2024 level with the 2025-2026 levels on average at 2.0%, it is difficult to see why the ECB should not cut at the April meeting. While that small risk exists (8 bps still priced) it will be hard for the EUR to sustain any rallies.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.