Euro: Sintra seasonality points to tactical strength against US Dollar – BNY

BNY’s Geoff Yu highlights a recurring post-Sintra pattern in the Euro, with hawkish ECB communication from Christine Lagarde typically driving EUR/USD gains from late June into early July before they fade. He expects renewed Euro buying in coming weeks but stresses that weaker fiscal support and supply-side pressures mean any early-July Euro strength should be treated as tactical, not a sustained breakout.

Seasonal Sintra boost seen fading

"EUR has displayed a consistent post-Sintra seasonal pattern over the past three years. Relatively hawkish messaging from ECB President Christine Lagarde has typically triggered renewed EUR buying from late June into early July, before those gains faded as the initial policy repricing ran its course. While 2024 and 2025 also saw a late-August recovery in EUR flows, those episodes were supported by specific macro and political factors that appear less likely to recur this year."

"EUR buying is expected to re-emerge over the next few weeks, providing an opportunity to position for near-term strength before flows fade through July. The probability of another late-summer rally is lower, as today’s macro backdrop resembles 2023 more than 2024 or 2025, with weaker fiscal support and tighter policy pressure from supply shocks. That favors Eurozone fixed income over equities and suggests any early-July EUR strength should be viewed as tactical rather than the start of a sustained breakout."

"There are further signs that the ECB may be backtracking on its policy trajectory. Governing Council member Mārtiņš Kazāks has stated that there is currently “no need” for multiple ECB hikes in a “rushed” way, and markets are barely holding on to expectations of a full 25bp hike for the remainder of the year. The latest ECB inflation expectations survey points to significant easing in household fears about inflation, and the increasing lack of energy price sensitivity to developments in the Gulf should translate into softer headline inflation globally in the coming months."

"ECB President Christine Lagarde will give what may be her final Sintra opening keynote address tonight, opening the three-day flagship ECB symposium with the theme “Shaping Europe’s future: innovation, growth and stability.” The highlight of the sessions is a policy panel she will share with Federal Reserve, Bank of England and Bank of Canada counterparts."

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