EUR/USD: Easing tensions in Ukraine to lift the euro – NBF

The situation for the euro is far from being simple. Economists at the National Bank of Canada maintain their view of sideways trading for the first half of the year with the possibility of some appreciation if the situation in Ukraine cools and as the pressure mounts for the normalization of monetary policy in the common currency area.

Rate hike expectations have moved up

“We maintain that the risk of a Russian invasion in Ukraine is unlikely now but remain wary of volatility created by ambiguity. A clean resolution would likely translate into lower prices for energy and a more risk-on attitude by markets. In such situation, the euro could see some appreciation.”

“Trades are now betting Christine Lagarde could fold as soon as July of this year. We think this may be premature and diverges from her statement made on February third which mentioned slowdown risks for the first quarter of the year and overaching caution. Still, Largarde’s tone has started to shift and combined with the risk os sticky inflation could materialze into a rake hike by year-end.”

“We maintain our view of sideways trading for the first half of the year with the possibility of some appreciation if the situation in Ukraine cools and as the pressure mounts for the normalization of monetary policy in the common currency area.”