Euro continues to 'fall victim' to Trump trade

Matthew Ryan, CFA Ebury

The euro continues to fall victim to the Trump trade, as US rates rise relentlessly, widening the gap with the Eurozone.

The divergence between the projected paths of interest rates on each side of the Atlantic is getting starker. Markets are starting to doubt whether the Fed will cut rates at all in December, while pricing a meaningful chance of a 50 basis point cut out of the ECB at one of the next two meetings. The common currency appears to have found some sort of a floor around the 1.05 level.

The sell off against the dollar has been pretty brutal, and current levels seem to already price in a lot of divergence in economic performance in favour of the US. A PMI number above 50, indicating that the Eurozone economy is still growing, however slowly, could puncture this narrative and offer at least some temporary support for the euro.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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