💶Euro Tends to Fade Strength After ECB Hike: Cable FX Macro

• Over the last 10 years, the ECB has gone through two tightening cycles, April 2011 and July 2022. Central bank tightening may or may not feed into currency price action as the premium to hold assets in the denominated currency increases and carry attractiveness rises. However, over the last decade, this has not been the case for the single currency.

• Our calculation shows the EUR/USD fell more than 1.0% on average 30 days into the ECB tightening cycle, and while the sample size is very small, the window for losses is very similar. Positive first 3 weeks turned into losses by the 30+ trading days.

• While some market participants stand USD bearish, we hold this view with a degree of caution given the broad macroeconomic context.