Concerns about stagflation and the end of the ECB’s tightening cycle may continue to weigh on the Euro – OCBC

He EUR/USD traded on a “buy the rumor, sell the fact” basis at last week’s ECB meeting. The economists of OCBC Bank They analyze the pair’s prospects.

USD will lead the way

In the short term, concerns about stagflation in the EU and the ECB at the end of the tightening cycle may continue to weigh on the EUR. That said, with the ECB behind us, the outlook for the Euro will also depend on the evolution of the Dollar, the UST trade and the FOMC decision.

We are neutral on the outlook for the Euroas growth in the euro zone appears to slow, while the ECB’s tightening cycle is likely coming to an end.

With the Fed potentially closer to a shift in its monetary policy in the first quarter of 2024 (versus the ECB in the second half of 2024), some degree of convergence in the monetary policies of the ECB and the Fed is still likely, which could continue to marginally support a slightly bullish trajectory in 2024.

The main risks to the Euro outlook are a dovish turn by the ECB sooner than expected and/or growth momentum in the Eurozone continuing to slow sharply.