Euro set for 'gradual appreciation' against Dollar

Matthew Ryan, CFA Ebury

The Eurozone flash inflation report for June contained some good news for the ECB. Both the headline and the core index dropped further than expected, with the latter now not all that far away from the 2% target.

The ECB officials that spoke at the Sintra conference last week were largely noncommittal, suggesting that the central bank is keeping its options open and will react to incoming data.

However, markets are already pushing the first hike into the future, and see no more than a 50% chance of a move in September.

Now that central banks appear to be in a wait-and-see mode, the rate differential across the Atlantic seems to be stabilising, and we think that the common currency has found solid support around the recent lows against the dollar. This is supporting our call for a gradual appreciation in the euro versus the dollar over our forecast horizon.

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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