EUR/USD: Limited scope for lower yields at the front-end in the Eurozone will provide Euro with support – MUFG

FXStreet Insights Team FXStreet

EUR/USD managed to rebound yesterday. Economists at MUFG Bank discuss the pair’s outlook.

ECB minutes point to two more hikes

The minutes (known as the accounts) from the ECB meeting on 4th May were released yesterday and again the take-away here also reinforces the prospect of at least two more rate hikes by the ECB.

ECB President Lagarde stated yesterday that there was ‘no clear evidence’ that underlying inflation had peaked. Expect that rhetoric to be repeated when President Lagarde speaks in the policy press conference on 14th June after a likely hike of 25 bps.

The ECB minutes, the comments from Lagarde and the fact that services inflation could well drift higher over the summer on tourism-related inflationary pressures, we see limited scope for lower yields at the front-end in the Eurozone which will provide EUR with support at these lower levels.

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Markets opened July with a December hike as the base case and spent five trading sessions unlearning and relearning it. A 57K payrolls print bled the tightening bets out of the strip; a re-shut Strait of Hormuz is pushing them back in. Wednesday's minutes from the June FOMC meeting landed mid-round-trip, describing a world that had already stopped existing.