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Mar 08 - 10:55 AM

ANZ: Analyzing EUR/USD's Post-ECB Meeting Movement and Week Ahead Forecast

By eFXdata  —  Mar 08 - 09:30 AM

Synopsis:

Following the European Central Bank (ECB) meeting, EUR/USD experienced a brief decline before aligning with broader G10 currencies in moving against the USD. The ECB's updated quarterly forecasts predict a slowdown in inflation to 2.3% for 2024 from a previous 2.7%, with a June rate cut appearing increasingly likely. President Lagarde's balanced commentary highlighted both progress on inflation and concerns over premature easing. Despite a recent dip in negotiated wage rates, indicating potential easing in wage pressure, risks to European inflation and economic activity lean towards the downside. This scenario could necessitate earlier or more aggressive ECB rate cuts compared to other central banks, posing downside risks for the EUR.

Key Points:

  • Short-lived Reaction to ECB Meeting: EUR/USD's initial drop post-ECB was quickly reversed, showing resilience against the USD.
  • ECB's Inflation and Growth Forecasts: Inflation for 2024 revised down to 2.3% with a probable rate cut in June, suggesting a cautious ECB stance.
  • Wage Pressure Dynamics: A decrease in negotiated wage rates hints at potential relief from inflationary pressures, aligning with slower quarterly indicators.
  • Comparative Central Bank Actions: The need for earlier or more substantial ECB rate cuts could introduce negative implications for the EUR, especially against the backdrop of differing central bank policies.

Conclusion:

ANZ maintains a neutral stance on EUR/USD, anticipating a trading range of 1.085–1.10 for the upcoming week. Despite temporary resilience, the EUR faces downward pressure due to potential shifts in ECB policy and inflation dynamics. Investors are advised to approach long EUR positions with caution, keeping an eye on evolving economic indicators and central bank actions.

Source:
ANZ Research/Market Commentary

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