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May 20 - 06:55 PM

Credit Agricole: 4 Reasons why EUR Rallies are Likely Limited N-Term

By eFXdata  —  May 20 - 03:00 PM

Synopsis:

Credit Agricole provides an analysis on why the Euro's recent outperformance may not signal a broader, sustained rally. Despite anticipation of ECB monetary easing, several factors could limit the Euro's gains in the near term.

Key Points:

  1. Delayed Impact of ECB Easing: The beneficial effects on growth from expected ECB rate cuts may not be immediate, particularly if the lower rates are not quickly passed on to borrowers.
  2. Global Trade Risks: Any recovery in the Eurozone remains susceptible to potential disruptions in global trade, exacerbated by ongoing geopolitical tensions and the upcoming US presidential election.
  3. Inflation Concerns: Persistent high commodity prices may lead to renewed cost-push inflation, which could diminish real incomes within the Eurozone, undermining economic stability.
  4. Competitive Devaluation Risks: The possibility of depreciation in Asian currencies as a form of competitive devaluation could cap gains in the Euro, maintaining pressure on the currency.

Conclusion:

While there are optimistic views regarding the Euro's performance following potential ECB policy easing, Credit Agricole outlines several challenges that may restrict the scope for significant Euro rallies in the near term. These factors include delayed transmission of monetary easing, geopolitical and trade uncertainties, inflationary pressures, and currency devaluation strategies by other economies.

Source:
Crédit Agricole Research/Market Commentary

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