EUR/USD: ECB’s current approach to support Euro – Commerzbank

The ECB prepared the market well for today’s rate meeting. Esther Reichelt, FX Analyst at Commerzbank, notes that the Euro is well positioned to strengthen against the US Dollar.

Euro goes well prepared into the ECB meeting

“A 50 bps rate hike is seen as a fait accompli. It is therefore likely to be decisive for the Euro what ECB President Christine Lagarde has to say about the March decision and the rate path beyond that. If Lagarde signals that a further 50 bps rate is not set in stone I think the Euro will get under selling pressure.”

“As long as no reversal becomes obvious in core inflation the market is likely to price in an increased risk premium of inflation not easing towards its target as expected. Against this background, the ECB’s current approach – of sticking to ‘larger’ rate step for now and not committing beyond that – is appropriate from the FX market’s point of view which supports the Euro.”

“An end of the monetary policy tightening seems more certain for the Fed than for the ECB. That does not necessarily mean that the EUR will appreciate significantly from here. However, the risk of the ECB having to top up its measures further because upside risks for inflation emerge, thus supporting the Euro, are currently likely to be considered higher than further appreciation potential for the USD.”

See – ECB Preview: Forecasts from 14 major banks, another 50 bps hike