EUR/USD: More hawkish ECB and EU-US yield spreads to support the euro – Westpac

EUR/USD managed to build on Wednesday's rebound and was last seen posting modest daily gains above 1.09. A lack of escalation of Ukrainian conflict and a lack of key Eurozone data until flash PMIs could allow a more hawkish European Central Bank (ECB) and EU-US yield spreads to support the euro, economists at Westpac report.

Could turning downtrend in EU-US 2yr swap support EUR/USD?

“ECB meeting might be seen as a placeholder, but Lagarde’s sharp turn in guidance at the ECB’s March meeting suggests that there could be an affirming of notably more hawkish guidance. It could therefore underscore the likelihood that ECB’s QE will end into mid-year and make comments from more hawkish General Council members calling for rates to rise in H2 22, a more mainstream profile for ending Negative Interest Rate Policy (NIRP) into year-end.”

“While matters in Ukraine are less distressing for markets and fear of a French election shock appear less likely, the lack of key data prior to flash PMIs could allow the potential turn in the EU-US 2yr swap spread to provide support for the ailing EUR as EUR/USD tests 1.08.”

See – ECB Preview: Forecasts from 12 major banks, tighter policy in response to higher inflation