EUR/USD: ECB’s current approach supports euro – Commerzbank

The ECB has prepared the market well for today’s rate meeting. Esther Reichelt, currency analyst at commerzbankpoints out that the Euro is well positioned to strengthen against the US dollar.

The euro arrives well prepared for the ECB meeting

“A 50 basis point rate hike is considered a fait accompli. Therefore, what ECB President Christine Lagarde says about the March decision and the path of higher rates is likely to be decisive for the euro.” beyond that date. If Lagarde signals that a new rate of 50 basis points is not set in stone, I think the euro will be under selling pressure.”

“As long as a reversal in core inflation does not become apparent, the market is likely to price in a higher risk premium as inflation falls short of its target as expected. Against this backdrop, the ECB’s current approach of sticking to for now to a higher rate notch and not commit further, is appropriate from the point of view of the currency market, which supports the euro.”

“The end of monetary policy tightening seems more certain for the Fed than for the ECB. That does not necessarily mean that the euro will appreciate significantly from now on. However, the risk that the ECB will have to strengthen further its measures due to the appearance of upward risks for inflation, which would imply support for the euro, is currently considered to be greater than the potential appreciation of the dollar.”