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Dec 16 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Downside Not Guaranteed As ECB Impacts More Than The Fed

By Christopher Romano  —  Dec 16 - 10:30 AM

EUR/USD traded near flat Friday as bears struggled to extend Thursday's sharp fall, in a sign that investors may be giving ECB hawkish rhetoric more credence than the Fed's aggressive stance.

ECB member Francois Villeroy de Galhau echoed the hawkish tone of ECB President Christine Lagarde's hawkish news conference nS8N2XG053, by stressing that significant tightening remained ahead nFWN3360YV.

Similarly, New York Fed President John Williams said during a BBG TV interview it was possible that the U.S. central bank could hike more than the FOMC's terminal rate forecast nN9N30X00U, reinforcing the hawkish outcome of the Fed's meeting on Wednesday.

rate markets appeared skeptical of Williams' comments.
December 2023 Eurodollar futures prices remained higher on the week while June 2023 Fed Funds futures prices traded higher on the session and are up on the week.

September 2023 Euribor futures FEIU3 fell to match the October monthly low.

2-year yield spreads tightened sharply this week to trade above -180 bps and to levels not seen since early February.

Unless U.S. rates rise higher than expected the narrowing rate differential between the U.S. and euro zone will make it difficult for EUR/UD to trade lower.

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Refinitiv IFR Research/Market Commentary


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