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May 31 - 12:55 PM

Credit Agricole: EUR/USD Outlook into Next Week's ECB June Meeting

By eFXdata  —  May 31 - 11:00 AM

Synopsis:

Credit Agricole provides an analysis of the potential impact of the upcoming June ECB meeting on EUR/USD, anticipating a test of the euro's resilience due to expected dovish monetary policy adjustments.

Key Points:

  1. Expected Rate Cut: The ECB is anticipated to reduce rates by 25 basis points, aligning with market expectations. This move is seen as a response to subsiding inflation and a slow, yet recovering, economic backdrop in the Eurozone.
  2. Forward Guidance: The ECB's updated forward guidance may indicate a need for further easing throughout the year, possibly aligning with Credit Agricole’s expectation of three rate cuts in 2023. This could be perceived as more dovish compared to current market rate expectations.
  3. Market Reaction: A dovish stance by the ECB might lead to a decrease in the EUR/USD rate spread and push Eurozone real rates and yields further into negative territory, potentially prompting a near-term pullback in EUR/USD.

Conclusion:

The expected dovish shift in ECB policy during the June meeting could challenge the euro's recent stability. If the ECB indicates a stronger dovish bias than anticipated, it could lead to renewed pressure on EUR/USD, affecting its performance in the near term.

Source:
Crédit Agricole Research/Market Commentary

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