ECB underpsins Euro, improvement in sentiment could propel it higher – Commerzbank

Will the ECB reduce the speed of rate hikes in March following a 50 bps hike in February? ECB intends to remain on course and that is seen as positive by the FX market, economists at Commerzbank report.

Credible ECB

“ECB President Christine Lagarde said that the ECB was determined to return it to the inflation target of 2% in a timely manner. As far as rate hikes were concerned the ECB would stay its course. As part of the last ECB meeting in December Lagarde had signalled a number of 50 bps rate hikes for the coming meetings.”

“Contrary to what is happening with the Fed, the market seems to be believing the ECB’s assertions, as rate expectations have hardly changed over the past few days. As far as monetary policy is concerned EUR is likely to be one step ahead. However, unless the rate expectations are fuelled further, it might well become increasingly difficult for EUR to appreciate further against USD.”

“It is possible that the sentiment indicators due for publication next week will provide additional momentum. If sentiment were to improve further, fears of a recession might be further pushed into the background, which could allow EUR to benefit.”