Euro flat as the 'AI wobble' offsets 'crisis-type' French bond concerns

Matthew Ryan, CFA Ebury

The euro was little changed after an eventful week. The ECB held rates after discussing a hike, signalling another increase is coming in December.

Policymakers do, however, appear increasingly wary about the selloff in European bonds, and the nod towards the spike in French yields is a clear indication that this could sap the appetite for further hikes next year. French bond spreads, which had touched crisis-type levels, eased after the meeting, but resumed their march higher in the general risk-off mood.

The meeting was overshadowed by the news that President Lagarde plans to leave her post in February - nine months ahead of schedule.

We don’t expect this to have major implications for the ECB rate path or the euro, though the sooner we hear news of her successor the better as far as the common currency is concerned.

The euro ended the weekly largely flat, reflecting two offsetting forces: concerns about France on the one side, and the selling of US assets driven by the AI wobble on the other.

If the AI scare fades, the French problem could dominate again. Flash inflation data on Wednesday is the next test for the ECB’s tightening bias.

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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