Euro: Downside risks against US Dollar despite ECB hike odds – BBH

Brown Brothers Harriman's (BBH) Elias Haddad notes EUR/USD is consolidating above 1.1600 with resistance at 1.1682, near the 200-day moving average, as European Central Bank's (ECB) Schnabel signals a June rate hike. Swaps price nearly 90% odds of a 25 bps move, but BBH stresses that tightening in a low-growth, high-inflation Eurozone is not supportive for the Euro and sees scope for EUR/USD to drift toward 1.1400.

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"ECB Executive Board member Isabel Schnabel signals June hike bias. Schnabel said “Given the size and the persistence of the current shock, looking through is no longer an option in my view…From today’s perspective, I think a rate hike in June will be needed.”"

"The swaps curve implies nearly 90% odds of a 25bps ECB rate hike to 2.25% at the June 11 meeting."

"Rate hikes in a low growth, high inflation environment, is not bullish for EUR but should help cushion the downside."

"We see room for EUR/USD to edge lower towards support at 1.1400, reflecting a stronger US growth outlook relative to the Eurozone."

"EUR/USD is consolidating above 1.1600 and faces immediate resistance at 1.1682. the 200-day moving average."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)