EUR/USD: Monetary landscape in Europe warrants little appreciation for the euro – NBF

The euro remains much in a wait-and-see mode as it awaits the shedding of more light on the situation in Ukraine. In the view of economists at the National Bank of Canada, the economic and monetary landscape in Europe warrants little appreciation for the common currency at this time.

Uncertain path

“It should be said that the euro remains much in a ‘wait and see mode’ as it awaits the shedding of more light on the situation in Ukraine. Still, in the meantime, the prospects for the European economy are lackluster, to say the least.”

“The toolbox for a supply shock is sparse and demand is likely to be curbed in the coming months. That said, long yields such as 10y bunds have started to reflect the global tightening in monetary policy and are providing a form of unwanted tightening for the central bank.”

“Looking ahead, we remain cautious for the shared currency. Russia has threatened to cut off gas (and in some cases has) if payments are not made in rubles. This is unpalatable to policymakers in Brussels, and we could see renewed volatility as new sanction packages are rolled out in an effort to close loopholes in previous legislation.”