The stronger US dollar has helped drag EUR/USD back towards the 1.05 level. In the view of economists at MUFG Bank, the European Central Bank (ECB) will need to contain fragmentation risks in order to support the euro.
Central Bank Forum provides more insights into ECB policy
“The euro failed to derive support yesterday from hawkish comments by ECB President Lagarde in her flagship speech at the Central Bank Forum in Sintra. While she continued to outline the ECB’s plan to begin raising rates by 25 bps in July and by potentially a larger 50 bps in September followed then by gradual hikes beyond, she did emphasise yesterday that ‘there are clearly conditions in which gradualism would not be appropriate’.”
“It is of crucial importance for the ECB to contain fragmentation risk to enable the ECB to raise their policy rate as much as required to dampen upside inflation risks. The main risk the ECB faces by announcing the size of the new tool is that it could disappoint market expectations compared to the alternative of leaving it more open-ended.”
“To offer more support for the euro, the ECB needs to successfully contain fragmentation risks that will allow it to keep raising their policy rate as required to fight inflation.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.