EUR: Hawkish ECB and better risk environment helps the euro
The trade-weighted euro pushed up around 0.2/0.3% yesterday on the hawkish ECB, but the better global growth environment and softer dollar generated a 1% rally in EUR/USD. As our readers hopefully know by now, we are bullish on EUR/USD in the second half, but we are not sure which month exactly the bull trend would take off. Could it be June?
The hawkish ECB – especially the upward revision to the 2025 CPI forecast – adds weight to our core house view that the central bank will say hawkish for longer and cut rates later than the Fed. At the same time, it looks like investors are gearing up for another expression of faith in Chinese growth prospects. Expectations are now growing that some fiscal support measures can be announced over the coming weeks to back up the recent monetary easing. This week's important turn-around in USD/CNH looks like an encouraging sign for the pro-cyclical EUR/USD.
For EUR/USD today, let us see whether the US data and Fed speakers make much of an impression. In addition, we have four ECB speakers from the more hawkish end of the spectrum. We prefer to back the bullish momentum here and can see EUR/USD pushing on to the 1.1000/1030 region today.
Chris Turner
In Norway, Norges Bank (NB) reported the results of a regional survey yesterday: the main takeaway was that price pressures continue to grow. This will ultimately help the central bank build its case for pushing rates beyond 3.50%, even though a much more important input to the NB decision-making process is NOK weakness. The next policy meeting is on Thursday when rates are expected to be raised by 25bp to 3.50%, although at this stage we cannot exclude a surprise 50bp hike.
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