EUR/USD to abandon levels above 1.0850 for now – Commerzbank

Rumours about the ECB’s medium-term course were making the rounds on the market yesterday: Following 50 bps in February the ECB was considering a 25 bps rate step in March. As a result, EUR/USD came under pressure. Understandable, in the view of Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank.

Euro feels the pain from the dovish ECB report

“So far one might have hoped that between the end of the Fed rate hike cycle and the ECB cycle there might be a period when the ECB is still hiking its key rate but not the Fed. We have not had a situation such as that for quite a while. And once again it is getting less likely that we will see it. That is reason enough for the market to abandon EUR/USD exchange rates above 1.0850 for now. Understandable in my view.”

“I think that smaller ECB rate steps would be EUR negative on a sustainable basis above all if the European central bankers were to commit to it too firmly at their meeting the week after next.”

“What FX traders are interested in is whether the central bank concerned will act sufficiently quickly in case of an inflation shock and whether it will implement sufficiently robust counter-measures. If there is this confidence then the currency concerned is attractive. If, with inflation levels at 9%, the ECB were to consider easing its efforts in its fight against inflation very notably this confidence would be tarnished.”