The Euro has continued to strengthen modestly against the US Dollar earlier this week. The economists of MUFG Bank analyze the outlook for EUR/USD.
What is helping to give more support to the Euro?
We believe that the Euro is being supported by several favorable developments. First of all, The Eurozone rates market has been delaying the timing of the ECB's first rate cut. The European Central Bank's first rate cut is now seen as more likely to occur in June than in April (only about 9 basis points of cuts are now forecast by then). At the same time, the total amount of ECB rate cuts planned for the end of the year has been reduced to around 88 basis points. This development is helping to alleviate downward pressure on the Euro in the short term.
Second, there have been some encouraging developments that are helping to ease concerns about growth prospects in the euro zone. The price of Natural Gas in Europe continues to fall. This makes us more confident that the negative impact on the Eurozone economy will continue to subside next year. This supports our expectations of a pick-up in growth in the second half of this year, as inflation continues to slow back to the ECB's target. At the same time, growing optimism about the global stock cycle could indicate a possible rebound in global trade in the future, which would provide support for the Eurozone economy.
Finally, The recent easing of investor pessimism about the Chinese economy has been helped by new stimulus measures that are also helping to ease short-term selling pressure on the Euro.. The upcoming National People's Congress in March could be a positive catalyst should new stimulus measures be announced.
Source: Fx Street
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