MUFG Research discusses the EUR outlook in light of the latest efforts from the ECB to push back against euro strength.
"The ECB delivered a one-two punch to the euro yesterday when first up Governing Council member Klaas Knot emphasized that the ECB has the necessary tools including interest rate cuts to prevent a further strengthening of the euro from undermining the outlook for inflation in the euro-zone. It follows the recent report that the ECB will look deeper into whether the euro’s gains versus the US dollar since the start of the pandemic were driven by differences in stimulus policies between the ECB and Fed," MUFG notes.
"At the same time, the impact of negative rates on the euro is mixed. The last time the ECB lowered the deposit rate by -0.10 point to -0.50% in September 2019, the euro remained largely range bound between 1.1000 and 1.1200 between August 2019 and January 2020. It suggests that another rate cut could fall short of expectations to materially weaken the euro especially if the Fed continues to keep loose policy in place at the same time,' MUFG adds.