Euro lags ahead of ECB meeting
The collapse of the French government was largely priced in by markets, and the common currency actually ended the week posting a modest rebound against the dollar.
Difficulties lie ahead, however, as the government has shown a complete inability to pass a budget for 2025, meaning that the onus on providing stimulus to the economy will lie squarely on the doorstep of the European Central Bank.
This week's ECB meeting is key, of course, though institutional pushback against a 50 bp cut has led markets to almost rule out that outcome.
Staff forecasts for growth and inflation will be key, in our view. Current levels of the euro are very low, and we would need to see some meaningful downward revision of those forecasts, particularly inflation, to justify any further downside from here.
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.
