EUR/USD: Euro appreciation delayed - CIBC

Analysts at CIBC, point out that the euro has made little ground lately given economic data disappointments, and consequently pushed back their rate hike expectations from the European Central Bank into the second half, delaying euro appreciation slightly.

Key Quotes: 

“Q3 GDP underlined the weakest quarterly performance in four years for the Eurozone, but several of the forces limiting growth are expected to prove transitory. However, it appears that external trade pressures, combined with political uncertainty in Italy and France, may lead annual growth to fall below its mid-2014 cyclical low in Q4 2018, amidst challenging base effects.

“The prospect of rising wages supporting consumption and prices will ultimately provide an impetus for the start of a cautious tightening cycle. The forward-looking composite PMI survey data ended 2018 at the lowest level in four years."

“While the balance of risks may have tilted lower, the ECB still views the growth outlook as broadly balanced. The fall in the unemployment rate to below 8% for the first time in a decade also signals that wage pressures are to firm up. Indeed, worker compensation registered its highest growth in almost 10 years in Q3. Inflation expectations should therefore remain robust. While the ECB may delay policy action we do not expect this to materially compromise EUR performance, with EURUSD expected to rise to 1.22 by the end of 2019.”