The current rise in gas prices in Europe has encouraged market participants to anticipate further tightening by the European Central Bank (ECB). However, according to economists from MUFG Bankthe Growth risks will keep the euro under pressure.
Higher risks of the ECB defaulting on rate hikes compared to the Fed
“If EUR/USD extends further lower (what we expect in the coming months), likely related to natural gaswhich will lead to lower GDP growth expectations, and there will be little the ECB can do to influence currencies in that circumstance.”
“Based on the current macro risks related to the energy crisis in Europe, we continue to see higher risks that the ECB and BoE will default on rate hikes compared to the Fed.”
“The hit to growth in Europe is likely to undermine the room for adjustment, even as the euro depreciates further.”
Source: Fx Street
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